Assignment - Maximizing Profits in Market Structures

Assignment - Maximizing Profits in Market Structures - 1...

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1 Maximizing Profits in Market Structures “Maximizing Profits in Market Structures” Desiree’ Forgason XECO/212 07:04:50 Sarahbeth Spasojevich
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2 Maximizing Profits in Market Structures What is a competitive market? According to Mankiw (2007), “A competitive market has many sellers and buyers who trade products that are identical or similar in description. There are three characteristics of a competitive market and they are as follows: there are many sellers and buyers in the market, the goods offered by the various sellers are largely the same, and firms can freely enter or exit the market. However, because of these conditions, the actions of any single buyer or seller in the market have a negligible impact on the market price. Each buyer and seller takes the market price as given (pg 290). In a competitive market, both the buyers and sellers must agree upon and or accept the price that the market determines. This is why the buyers and sellers are referred to as, price takers. However, the goal of any competitive firm is to maximize its profit, which equals total revenue minus total costs. Wikipedia (2010) states, “Any profit-maximizing producer faces a market price equal to its marginal cost. This implies that a factor’s price equals the factor’s marginal revenue product. This allows for derivation of the supply curve” (para 2). In a competitive market, the price of goods would equal marginal revenue. If a company would want to maximize their profits, they would have to increase their production making sure that marginal revenue surpassed marginal cost. A company would have to cut its production if marginal cost were to be greater than marginal revenue. According to Wikipedia (2010), “Generally, a perfectly competitive market exists when every participant is a "price taker", and no participant influences the price of the product it buys or sells. Specific characteristics may include:
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3 Maximizing Profits in Market Structures Infinite Buyers/Infinite Sellers
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This note was uploaded on 03/05/2011 for the course XECO 212 taught by Professor Cohen during the Spring '10 term at University of Phoenix.

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Assignment - Maximizing Profits in Market Structures - 1...

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