Market Structure and the Role of Government Essay

930 WordsFeb 17, 20134 Pages
Market Structure and the Role of Government Grand Canyon University: HCA 530 Health Care Policies and Economics 23 November 2011 Market Structure and the Role of Government a) Explain the unique characteristics of the four primary market structures. There are four basic types of market structures under traditional economic analysis: perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a market structure in which a single supplier produces and sells the product. If there is a single seller in a certain industry and there are no close substitutes for the goods being produced, then the market structure is that of a "pure monopoly". Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced, but nevertheless firms retain some market power. This is called monopolistic competition, whereas in oligopoly the main theoretical framework revolves around firm's strategic interactions. (Gordon, 2009) Unique Characteristics Monopoly: • Single seller: • Market power: • Firm and industry • Price Discrimination Perfect Competition: • Infinite buyers and sellers • Zero entry and exit barriers • Perfect factor • Perfect information • Zero transaction costs • Profit maximization • Homogeneous products • Constant returns to scale Oligopoly: • Profit maximization conditions • Ability to set price • Number of firms • Long run profits • Product differentiation • Perfect knowledge • Interdependence Monopolistic Competition: • Many Sellers • Differentiated Products • Multiple dimensions of competition • Easy entry of new firms in the long run b) Explain why economic profits are zero in the

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