Assessing the Effectiveness of the Market Structure

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Assessing the Effectiveness of the Market Structure

The shift of the market structure from perfect competition market to imperfect competition market with the ability of the firm to set its own optimal price gives specific advantages to the low-calorie frozen, microwavable food company in conducting its operations. In the current scenario where the firm has substantial power in determining its own optimal price, it means that the firm is the price maker while the current and prospective customers are the price takers. This means that the only challenge that the company faces in determining the prices of the product is the willingness of the consumers to pay for the products. Where the market structure gives the firm substantial power to determine its optimal price for its products, it means that the firm currently operates in an industry with limited competition. Unlike the previous market structure where the selling environment was perfectly competitive and the price of products determined by forces of demand and supply, the price setting in the current market structure is not influenced by demand and supply, that is, QD ≠ QS (Carraro, Katsoulacos & Xepapadeas, 2013).

The imperfect selling environment in which low-calorie frozen, microwavable food company conducts its operations allows it to maximize it revenue (π) in all its ventures through its utmost ability to produce output (q) at a desired price (p). Unlike the perfect competitive environment operated by the firm previously, imperfect competition environment with substantial ability to determine price of products allows a firm to equate its marginal revenue (MR) to marginal cost (MC) in all its ventures and business cycles (Azevedo, 2014). The optimal business operation condition where MR equals to MC is given by the following equation;

Max π = p (q) – q – C (q)


However, the ability of low-calorie frozen, microwavable food company to take advantage of its current market structure relies heavily on the flexibility of the firm’s demand curve. If the demand curve is more inflexible (steeper), the firm will have to decrease its production in order to attain an elevated price. The firm’s ability to increase the prices of its products would however diminish where its demand curve is flexible. This is where a slight increase in price would lead to large negative shift in the quantity demanded (Azevedo, 2014).

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