Managerial Economics

Document Type:Research Paper

Subject Area:Business

Document 1

There exist three major categories of the managerial economics; the market power, the competitive markets, and the imperfect markets. When we talk about a market, we refer to the sellers and buyers who negotiate with each other for exchange of goods and services without anyone being forced instead happening voluntarily. This essay will dig deeper to explain the market power as one of the major branches of managerial economics. Market Power The authority and the ability of a business to profitably improve the market value of a goof and service above the marginal cost is referred to as the Market power. This depends on the supply, demand, or in some cases both (Landes, 2011). For the monopoly case, it works only when there exists of one particular seller or supplier of the good or the service.

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Actually, this is the best example where market power perfectly works since the organizations can higher the prices of the goods and services by either reducing its level of supply or output (Hirschey, 2016). This situation will trigger the company's good and services market demand and at the same time, the supplier will raise the price. The best examples of monopoly include water companies, electricity supply organizations, the television cables service companies, the local telephone companies, and the Monsanto. The other case is the oligopoly where the business market power is determined by the level of dominance from a few similar firms around which limit the company goods and service supply. al. For the organization to have the maximum market power, its goods and services price cost should exceed the marginal cost and have a quite long-term average cost evaluation in order to make massive economic profits.

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In addition, when a company organization has the total market power, it has the complete control power of all the prevailing prices within the market or in other terms it has the total quantity produced (Bresnahan, 2009). It is important to note that markets have not to be dominated by the lone companies suppliers with the monopolistic type behaviors as this results to lowering or economic growth decline when you take a comparison to the other marketplaces with several recognized similarly size competitors. To prevent economic growth decline within the country, the states develop an anti-trust or any other responsible legislation to limit the business organization authority to develop the market power. When the market power index zero turns to be 1, then that means there is a total monopoly.

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