Prices under Different Market Structures

Prices under Different Market Structures

Q 1:

The prices in a perfect competition depend on the forces of demand and supply. No single firm has a significant control to influence the prices in such a market. Therefore, the firms in a perfect market are price takers. Vigorous price competition prevails in the perfect market because there are no significant barriers to entry and exit. Therefore, a large number of firms will rush to enter a market that offers supernormal profits. This influx of new entrants will cause the supply curve to shift outwards and force the price to move downwards so that the remaining market players can only make normal profits (Hirschey, 2008). On the other hand, significantly low profits within the industry will force companies to exit the market. This outcome will cause the supply curve to shift inwards and force the price to move upwards so that the remaining market players earn normal profits.

Q 2:

I buy most of my snacks from the MacDonald’s outlets. The firm belongs to the fast food industry. Some of its most popular products include burgers, fries, nuggets and soft drinks. The fast food industry falls under the oligopoly market structure. A few key players dominate oligopolistic markets. Some of the major companies that dominate the fast food industry include the McDonald’s, KFC, Starbucks, Burger King and Subway. These companies control a significant portion of the fast food market in comparison to the other firms. The large economies of scale enjoyed by the dominant firms make it difficult for new entrants to compete against the established companies. The oligopoly market structure allows the dominant companies to influence the market prices (Bade & Parkin, 2015). These companies usually set the market prices, which guide the pricing strategies adopted by the other players in the market.

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