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Maximizing Profits in Market Structures Paper

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Maximizing Profits in Market Structures Paper

Some people understand, but few people realize just how important market structure is to the economy. In addition, some people do not realize how market structure influences the price they pay for a good or service, which in turn determines the market price. Furthermore, three market structures (competitive market, monopolies, and oligopolies) influences the market price and the economy. However, on the surface, competitive market, monopolies, and oligopolies market structures may appear different; they all share a common goal. That goal is to maximize profits.
The first of the three market structures I will discuss is the competitive market structure. Mankiw (2007) defines a competitive market structure as “a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker (Mankiw, 2007).” Therefore, in a competitive market, the buyers and sellers do not set the price for a product brought or sold, but the product’s market price determines the price of a product brought or sold. Since there are many buyers and sellers in a competitive market, with many of the firms selling the same or similar products, the firms do not have room to play around with the price of their products, because their competition would then take away their customer by pricing the same or similar product for a cheaper price.
According to Mankiw (2007), three characteristics make up the workings of a competitive market structure, or a perfectly competitive market. The three characteristics of a competitive market, discussed by Mankiw (2007) are “[1] there are many buyers and many sellers in the market. [2] The goods offered by the various sellers are largely the same. [3] Firms can freely enter or exit the market (Mankiw, 2007).”
However, the monopoly market structure works differently than the...

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