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ECO 204 NEW Week 5 Final Paper
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Importance of Economic Market Structures


ECO 204Principles of Microeconomics



Importance of Economic Market Structures

            Before an organization or investor makes a strategic decision to enter a product in today’s economy, a thorough market analysis is vital to fully comprehend the domestic and international demand, current suppliers, entry and exit barriers present, and cost of production for the product or service being provided.  The culmination of this investigation identifies the market structure the product resides in, associated potential long-run profitability, cost efficiency, survivability, and incentives for future entrepreneurs. This paper will describe the characteristics of four such market structures: perfect competition, monopolistic competition, oligopoly, monopoly while providing an illustrative example of each.  The paper further describes the competitive pressures with high entry barriers, preferred selling and buying markets, projected reaction to price changes for elastic and inelastic goods, government intervention and the expected effect of international trade on economic markets.

            Understanding how a product and associated production firm fits into an economic market structure is vital to investors as it impacts the firm’s motivations, opportunities and business strategies.  A successful economic analyst identifies the attributes of the applicable market structure, then using the known market assumptions predicts the implicit and explicit costs of production and projected market outcomes. However, in order to accurately classify the correct market structure, the economic analyst must first be aware of the defining attributes of each market.  The paper next describes the characteristics of a perfect competition, monopolistic competition, oligopoly, and monopoly market structure.

An ideal concept or standard of perfection exists merely as an image in the mind, or in the case of economics, as an ideal market structure concept. Ryan Amacher and Jennifer Pate describe this concept in 

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