Question

Select an industry or firm. State its market structure (pure competition, monopoly, monopolistic, or oligopoly). Next, please define the characteristics of the industry or firm that support your selection of market structure. Lastly, describe and illustrate graphically the firm's profit maximizing behavior in particular MR=MC under the above-mentioned market structures or conditions. In this written assignment, the quality of your writing and the application of APA format will be evaluated in addition to your content. Evaluation based on these criteria is designed to help you prepare your college projects, which must be well-written and follow APA guidelines. Each written assignment should contain a minimum of 300 words, but no more than 400 words. Make sure that you use correct spelling, grammar, and punctuation.

Answer 1

We can select the toothpaste industry since it is a consumer good and a widely used product by almost every consumer in any country. The market structure of this industry is pure competition. The characteristics that make this industry a pure competition is that there are many buyers and many sellers that selling a homogenous product. For instance, in India, we have various toothpaste brands such as Colgate, Pepsodent, Sensodyne, etc. available within the industry and consumers have a wide range of options to choose from. There is also free entry and exit in the industry i.e. if a firm is facing bankruptcy, it can exit the industry without paying any type of fees and a new firm can also enter the industry without paying an entry fee. There are no transaction costs and perfect information on prices is available i.e. consumers are well aware of the prices charged by the firm as well as its competitors. The firms in this industry are also price takers, i.e. no individual firm can determine the price of the industry. The main goal for a firm under perfect competition that maximizes profit is to find the profit maximizing quantity. The firm's profit-maximizing outcome occurs at the point where the marginal benefit of the product is equated to the marginal cost of producing it. This is where the marginal revenue/benefit curve intersects the marginal cost curve as illustrated in the graph below and the firm's equilibrium level of output is achieved (Q* in the graph). Then, the firm looks at the price it can charge for this level of output from the demand curve (P* in the graph). The graph below shows a firm earning a positive profit as its Average cost is below the price. The profit earned is represented by the shaded rectangular box. The calculus for obtaining the profit-maximizing output is also shown in the image below.