The Importance of Market Structure to a Firm

by | Jul 27, 2021 | Homework Help

Provide a 9 pages analysis while answering the following question: The Importance of Market Structure to a Firm. Prepare this assignment according to the guidelines found in the APA Style Guide. An abstract is required.

In the initial stages, there are a large number of small firms starting production at about the same time. It is likely that all the small firms have similar costs of production and this is shown in the cost curve named ATCo. It is a natural process for one of them to become larger than others, and then it can produce items at a cost lower than others and then the cost curve for it may change to ATC’. This permits the larger firm to sell its products at a lower cost than others, and this hurts the other firms which are smaller as they incur losses at that price. It is not only the development of production capacities that lead to this situation, and this concept of “natural monopoly” was first used to explain the development of the telephone industry in the United States. (Microeconomics: Chapter 11)

The situation in the early years was that most cities had more than one Telephone Company to provide telephone services. This was not an efficient operation as it required subscribers to contribute to the services of more than one company for getting a call through as the companies were not interconnected. Due to the fact that it was one of the first to start, Bell was larger than other companies. Since the cost of providing services to additional customers was relatively small, it was able to provide services to new customers at lower costs than others. 

Though the government was not in favour of the situation, it was compelled to accept the situation and permit the organization to operate as a regulated monopoly. The situation changed only at the end of the 20th century when the government decided to break up the company. This was believed to be a result of technological developments. (Microeconomics: Chapter 11) There are also other reasons for the development of monopolies, and it happens in New Mexico due to the ownership of most known sources of desiccant clay by a single-family. Even in the personal desktop industry, there are monopolies due to ownerships of software and chip technology.

Monopoly also takes place due to high costs of investments for entering an industry and these come in various forms – high advertising costs for the establishment of brand names, special-purpose machinery needed for production, the establishment of stocks at different levels for being able to make the goods available in the market, and so on. Patents and licenses are also methods of prevention of entry for new organizations, though there is justification for the provision of patents to ensure a return for research. At the same time, this permitted Polaroid to hold on to its business of instant film for a long time. (Microeconomics: Chapter 11) In the UK, the distribution of industry was to a large extent controlled by the government and its public sector which changed through the privatization program that began in 1979. .

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