P2 IP1 Essay Example | Topics and Well Written Essays - 1250 words

P2 IP1 - Essay Example Accordingly, the following brief analysis will be concentric upon defining and discussing tell tale hallmarks of the manner through which each of these market structures operates. Firstly, perfect competition will be discussed. Naturally perfect competition only happens in a situation in which numerous difference firms are competing against one another for business. Furthermore, firms in perfect competition in a competitive industry will produce an optimal output at the minimum possible cost for the consumer. Even though this might seem as rather confusing wording, it stands to reason. When one considers the way in which the market and the consumer benefit from a situation in which firms are locked in continual competition, the analogy makes perfect sense. For instance, consider the restaurant market within most locations throughout the United States. Even though this is permeated by many branded entities that engage in competition within a variety of different markets, it is invaria bly made up of many local entrants to the market that are effectively locked in perfect competition with one another; representing a benefit to the consumer in the fact that their output is optimal and their costs are minimized. The ease of entry into such a market is better than any of the other models/structures that will be discussed. Comparatively, a quite dissimilar form of market structure is that the monopoly. The monopoly is obviously a situation in which a firm has no competition within the industry (Elzinga & Mills, 2011). Accordingly, such a structure necessarily reduces the overall level of output that a particular business entity might otherwise be capable of and drive up prices accordingly. As was referenced in the previous model, the overall level of societal good that can be represented within the monopoly is greatly decreased. Furthermore, this particular reality has an economic definition which is defined as deadweight loss. Due to the differential with respect to where the supply and demand curves me, this deadweight loss is a quantifiable economic term that can be presented in numeric form to the individual seeking to understand and define the monopoly. The ease of entry into such a market is all but nonexistent. Another type of market structure that is known to exist is defined as an oligopoly. The oligopoly is an industry with only a few competitive firms. A traditional definition of oligopoly includes a tacit understanding of the fact that an element of collusion is possible. Within such an element of collusive oligopoly, the firms that are â€Å"competing† agree to function as a singular entity as a means to drive up costs and represent a market structure that is similar to a monopoly. However, the situation represents the ultimate prisoners dilemma. The temptation not to cooperate and to undercut the competition by providing a lower price and/or a higher quality product/service to the consumer is enough to ensure that most oligo poly is still compete; albeit at least upon the surface. The ase of entry into such structure can be difficult if not impossible; due to the desire of the existing firms to keep any potential further competition at bay. The final market structure which will be discussed can be defined as monopolistic competition. The monopolistic comp