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Tutorial 5/6 Week 6/7 Question 3 (7 marks) Describe and compare the level of price control...

Tutorial 5/6 Week 6/7 Question 3 Describe and compare the level of price control within the four market structures . Identify the market structure/s where a firm can be a price-maker (1 mark). If the firm is a price-maker, then the company will always be profitable. Explain why you agree or disagree with this statement ..

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Answer :

  • Question 3

Price control under the four market structures are:

  1. Perfect Competition- under perfect competition market price is determined by the intersection of market demand and market supply. Here individual firms do not have any influence on the market price
  2. Once the market price has been determined by market supply and demand forces, individual firms becomes price takers.
  3. Monopoly- they are the sole producer of a product, therefore it can exercise considerable influnce on the market supply of the commodity.
  4. Price of the commodity is fully under the control of the monopolist. Monopoly represents the most market power, so they are called price taker.
  5. Monopolistic Competition- a firm under monopolist competition can follow an independent price policy. It can influnce the price of thecommodity to some extent.
  6. It means that a firm under monopolistic competition is the price-maker of the product.
  7. Oligopoly- firms in this industry takes into consideration the reaction of the rival firm in the formulation of price policy.
  • Therefore they are the price setters or price makers.

Firms can be price maker under:

  • Monopoly, Monopolistic Competition and Oligopoly
  • If the firm is a price-maker then the company will always be profitable.
  • Yes, I agree because price makers are profitable because it will increase its output only as long as its marginal revenue is greater than its marginal cost .
  • In other words, as long as it is producing a profit.

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ekkarill92 answered 1 year ago
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