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Market Structure

1. Determine the Market Structure
Exhibit 3 depicts indicates the demand and cost conditions facing a firm.

a. Label all the curves and axis on the graph. Is this firm a price-taker or a price-searcher? Explain exactly how you can tell the difference.
b. Illustrate the firm's profit maximizing price and output in the diagram.
State the profit maximizing output rule.
c. If the firm produces the output you indicated in part b., will the firm be making a profit or a loss in the Short Run? Show the area that represents profit/loss.
d. Suppose this firm is in a competitive market with low entry barriers, large number of firms and differentiated product.
? What would you call this market? (Monopoly, Oligopoly, Perfect Competition, Monopolistic Competition).
? What would you expect to happen to the number of firms in this market in the Long Run? Will the firm be making profit in the Long Run? Make your own graph and illustrate the Long Run Equilibrium for this firm.

e. Suppose this firm is in the market with one firm, high entry barriers and unique good.
? What would you call this market? (Monopoly, Oligopoly, Perfect Competition, Monopolistic Competition).
? What would you expect to happen to the number of firms in this market in the Long Run? Will the firm be making profit in the Long Run? Make your own graph and illustrate the Long Run Equilibrium for this firm.

(see diagram in attachment)

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Solution Summary

Illustrate the firm's profit maximizing price and output in the diagram.

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