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You have to look at the two scenario on the excel sheet I sent you in order to answer the question

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Requirement

· Describe the differences between the scenarios.

· Explain the source of the difference between the two scenarios.

· Comment on the impact on the market and economic agents when the competition is changed from perfect to less-than-perfect competition.

Write 2pages business brief and provide two references

Business Brief

There are a number of market structures that economist have categorized to characterize an economy. The four basic structures are perfect competition, monopolistic (imperfect) competition, oligopoly, and monopoly. However, in this assignment, we are asked to look into the data (Appendix) of two scenarios: a perfect competition market structure and the less-than-perfect competition market structure.

Perfect Competition Vs. Less-than-perfect Competition

The first scenario displays a perfect competition structure. A perfect competition is a theoretical concept; it describes a market with a large number of firms competing against each other and all the firms are considered to be price takers, as no single firm has an influence on the price of products, products which are considered to be undifferentiated (Fernham, 2014). Whereas the second scenario displays the less-than-perfect competition structure, and it refers to a market, where firms have some market power on the prices due to them producing differentiated products (Fernham, 2014)

Upon studying the data provided in the excel sheet, the marginal revenue in a perfect competition market was a constant $8, and that is due to the fixed unit price that did not change no matter how many number of units sold. Whereas, for a less-than-perfect competition, the marginal revenue continued to decline as more output was being produced and sold. Both graphs show the correlation between the marginal revenue and marginal cost in each scenario. The marginal revenue curve in the first graph is horizontal, and this is one of the main differences between the two structures. In a perfect competition structure, the unit price equals the marginal revenue due to the fact that firm’s demand curve in this structure is perfectly elastic. Making the attempt of lowering the prices of their products to sell more output units to backfire by causing the demand for the product that the firm is selling to decrease and finally disappear (Fernham, 2014).

As for a less-than-perfect competition, firms in this market have some market power from producing differentiated products (Fernham, 2014). The second graph demonstrates the data of the second scenario, which indicates a change in the unit price with the increase in the output. It is known that the demand curve in a less-than-perfect competition, is not perfectly elastic and that is due to the market power that firms in that structure have. Firms in a less-than-perfect competition market are able to increase their prices without losing all of their customers. The marginal revenue in the second graph slops downwards and that may be due to the existence of substitute products in this scenario’s market, which had a negative impact on the demand. While as the marginal cost slops upwards, which is expected since the number of units of production has increased.

 The source of the difference between the two scenarios

The source of difference between the two scenarios is the marginal revenue and in the price’s nature in each market structure. In the perfect competition scenario, the marginal revenue is constant and does not change with the increase of output units and it equals the unit price. Whereas, the marginal revenue in the less-than-perfect competition scenario, decreased with the increase of output produced. Firms at any market structure seek to maximize their profits. The graph shows that a firm in the first scenario reaches its profit maximization (which is when the marginal revenue equals the marginal cost) at four units of output, where the marginal revenue and the marginal cost meet and are the same, $8. The graph in the second scenario shows that a firm reaches its profit maximization is at three units sold, where the maximum profit is $16.5.

The impact on the market and economic agents when the competition is changed from perfect to less-than-perfect competition.

Changing from a perfect to a less-than-perfect competition has an impact on the market and the economy. One of the main changes is the change that will occur to prices. In the perfect competition, there are many suppliers selling similar products to the buyers, and firms in this market are price takers, as the price of a product in an industry is determined by its demand and supply (Perfect Competition, n.d.). Whereas in a less-than-perfect competition, there are numerous sellers selling alternative products, firms in this market structure are price makers as they set their own prices for their products.

However, for firms changing from a perfect competition to a less-than-perfect competition they may face some difficulties, as one of the characteristics of a less-than-perfect competition is that it has few barriers of entry. Nevertheless, in the long-run, the demand for goods in a less-than-perfect competition market structure is highly elastic, as in the price of products is subject to changes. While in the short-run, the economic profit in this market structure is positive (Fernham, 2014).

References

Farnham, P. (2014). Economics for managers (3rd ed.). Boston: Pearson.

Perfect Competition (n.d). Investopedia. Retrieved 19 August 2017, from http://www.investopedia.com/terms/p/perfectcompetition.asp

Appendix

The First Scenario: Perfect Competition (Unit price = $8)

Number of Units SoldTotal RevenueMarginal RevenueMarginal CostTotal Cost
0$0$0
1$8$8$6.5$6.5
2$16$8$7$13.5
3$24$8$7.5$21
4$32$8$8$29
5$40$8$8.5$37.5
6$48$8$9$46.5

Second Scenario: Less-Than-Perfect Competition

Number of Units SoldTotal RevenueMarginal RevenueMarginal CostTotal CostUnit Price
0$0$0
1$17.5$17.5$6.5$717.5
2$30$12.5$7$1415
3$37.5$7.5$7.5$2112.5
4$40$2.5$8$2910
5$37.5($2.5)$8.5$387.5
6$30($7.5)$9$475

Marginal Revenue 8 8 8 8 8 8 #REF! 1 Marginal Cost 6.5 7 7.5 8 8.5 9 Marginal Revenue 17.5 12.5 7.5 2.5 -2.5 -7.5 #REF! 1 Marginal Cost 6.5 7 7.5 8 8.5 9

Sheet1

Perfect CompetitionPrice =$7.00TC = 6.25 Q + .25 Q2
Number of Units SoldTotal RevenueMarginal RevenueMarginal CostTotal CostTR – TC = Profit
0$0.00$0.00
1$7.00$7.00$6.50$6.50$0.50
2$14.00$7.00$7.00$13.50$0.50
3$21.00$7.00$7.50$21.00$0.00
4$28.00$7.00$8.00$29.00-$1.00
5$35.00$7.00$8.50$37.50-$2.50
6$42.00$7.00$9.00$46.50-$4.50
)
P = 20 –2.50Q
Less-than-Perfect CompetitionTC = 6.25 Q + .25 Q2
Number of Units SoldTotal RevenueMarginal RevenueMarginal CostTotal CostTR – TC = Profit
0$0.00$0.00$0.00$0.00
1$17.50$17.50$6.50$6.50$11.00
2$30.00$12.50$7.00$13.50$16.50
3$37.50$7.50$7.50$21.00$16.50
4$40.00$2.50$8.00$29.00$11.00
5$37.50($2.50)$8.50$37.50$0.00
6$30.00($7.50)$9.00$46.50-$16.50

Marginal Revenue 7 7 7 7 7 7 #REF! 1 Marginal Cost 6.5 7 7.5 8 8.5 9 Marginal Revenue 17.5 12.5 7.5 2.5 -2.5 -7.5 #REF! 1 Marginal Cost 6.5 7 7.5 8 8.5 9

Sheet2

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