Four Market Structures
The behavior of a specific firm in regards to deciding where to price a product and at what production level to produce depend greatly on what type of market structure it operates in. There are 4 markets structures in which firms operate: pure competition, pure monopoly, monopolistic competition, and oligopoly.
Quasar Computers began its business in 2003 in a pure monopoly market due to the fact that it had pioneered an all-optical note-book computer, branded “Neutron”. As its sole supplier, Quasar Computer had total control over its price over the next 3 years, which was the life of its patent. To start out, Neutron was priced at $2,550 with production level of 5.2 million units, with profit of $1.29 billion. This was the price and production level combination that profits were maximized. Which means Marginal Cost and Marginal Revenue were equal. As the nature of this market, firms typically didn’t need to spend much on advertisement since there were no competitions.......
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