Structures and Maximizing Profits Essay Example

prices that maximizes profits is by adhering to the production rules within a specific market. To achieve profit maximization, companies or firms employ their profit maximizing output level, which occurs when the marginal cost equals the product price. Additionally, when a company introduces products to new locations, the marginal cost of those products in the new locations becomes a component of the overall marginal cost.

This is an example of a company choosing to maximize their production in order to increase profits by considering the change in total cost. Another factor in profit maximization is when the marginal cost is equal to the price. Companies aiming for profit closely monitor this rule to assess profitability. The average total cost of a product plays a crucial role in profit maximization, where the marginal cost equals the price and the marginal cost rises. In monopolistic markets, companies maximize profits by adhering to the principle that marginal revenue equals marginal cost.

The concept of marginal revenue refers to the alteration in total revenue due to a modification in output. Single product producers strive to optimize their total revenue given their low production costs. In competitive markets, monopolies, and oligopolies, profit maximization is determined by assessing the relationship between price, marginal revenue, marginal cost, and average total cost.

Barriers to entry exist in every market, such as the possibility of profitable gains for established companies. For example, consider fast food hamburger restaurants at both local and national levels. McDonald's, being one of the original establishments in this industry, paved the path for following chains like Wendy's and Burger King. This demonstrates monopolistic competition.

Law and regulations can discourage or create barriers

for entry into certain market structures. The establishment of anti-trust laws is harmful to the development and expansion of monopolies. There are three business practices that pose a challenge for business entry. One of these practices is resale price maintenance, which occurs when a wholesaler sets a contractually agreed price for a product that the retailer must sell at. This eliminates competition as the retailer has no control over the price. Another business practice related to market power is...

Market power refers to a company's ability to set and adjust prices without losing customers or impacting the overall market. These companies are commonly known as price setters. According to Mankiw, companies with market power typically utilize this influence to raise prices beyond what their competitors offer. Predatory pricing is a subject of debate when it comes to market entry and regulations. Additionally, tying is classified as a third type of business entry barrier.

Tying forces smaller businesses to base their product strategies on manufacturers' market power and price discrimination practices. There are four additional entry barriers for different markets. The first is the market denial or lack of competition. Additionally, a company may possess a crucial resource that grants exclusive rights to that market.

When the government allows a single seller to produce or provide certain goods, it creates a situation where the cost of production is more efficient compared to a large number of producers. The characteristics, price determinations, and barriers of entry into competitive markets are crucial for the functioning of the economy. These characteristics help buyers and sellers understand and make business decisions that contribute to the success of the economy. Adhering to rules and

regulations that aim at profit maximizing is beneficial for the entire economy.

References

1. Mankiw, N. G. (2007). Principles of economics (4th Ed.) Mason, OH: South-Western Cengage Learning. Riley, Geoff. September.

2006.