Econ Essay my portion
The Cafe Ladro that we are working on
In terms of Economics there are 4 different types of market types. These four market types
are labeled: Pure (or Perfect) Competition, Oligopoly, Monopolistic Competition and
Monopoly.
Definition of Each Market Structure:
Pure/Perfect Competition: In this type of competition, the products being sold are exactly
identical. Because there are so many firms in a Pure Competition market, they are
considered price takers, meaning that they cannot set their own prices and must therefore
accept the price given by the market. If one person were to try to increase their price, a
consumer would look toward another producer or firm with a cheaper price to buy from. A
good example of what types of products would be sold would be anything a farmer grows.
Because there is essentially no defining differences between one fruit a farmer grows vs
another, the products are technically the same. A graph of a pure competition is different
than a normal equilibrium where demand has a negative slop and supply has a positive
slope. A pure competition graph has a horizontal demand line because the firms are price
takers and if the firm raises their price, the consumers could go to another firm. An
example could be Strawberries. If one farmer had Strawberries at $5 a pound vs another
farmer selling them at $4 a pound, the $5 farmer would make no revenue because
consumers would buy from the $4 farmer. Therefore, because of this, there is perfect
elasticity in a pure market. Also, there would be no reason to lower their price because
consumers would be willing to pay that $4 price which would be the highest amount
possible to charge to generate revenue. Also, because the graph has a horizontal demand
curve, the marginal revenue (MR) equals the demand (because if a consumer bought one
pound of strawberries at $4, and somebody bought another, the marginal revenue would
therefore be $4 because the revenue increased by $4. The cost curves however, are indeed
actual curves that help determine how many units a firm should produce. The profit
maximum point would be where Marginal Cost (MC) equals Marginal Revenue because
all resources are being to the best of their ability. Taking the Strawberry example, if the
farmer sells them at $4, and sees that at quantity 2 the MC does not equal MR, he should
produce more strawberries because he is not using full resources. If for example quantity
