Question

Explain the key differences in outcomes between markets consisting of price-setting firms and markets consisting of price-taking firms.

Select a specific real-world firm or market that we have not discussed in class or the online text and discuss what which model of market structure you think would be most appropriate to describe that market.

Real world markets never exactly meet the assumptions of the models, so you can also talk about what aspects of the real-world market may not fit the model what aspects are not well described by the model selected.

You might want to consider, if relevant, factors such as: the nature of the product, whether or not there are likely to be economies of scale, the number of competitors, the degree of market power, and outcomes such as prices, mark ups, profits and firm entry/exit.

Answer 1

Solution:

The differences in outcomes of price setting firms and price taking firms are:

PRICE SETTING FIRM	PRICE TAKING FIRM
1.These are the firms which are generally producers and they set the price according to the quantity demanded.	1.These firms must accept the prevailing market price and sell each unit at the same market price.
2.It has a high degree of market power which is the ability to raise price without loosing all sales	2.They have marginal revenue=marginal cost (MR=MC) for maximising the profit they emerge in a perfectly competitive market
3. Example are producers and the government	3. Agricultural firms are the examples of price taking firms

One of the real world firm or market is Nestle it is a type of price setting firm because this firm sets the prices and many of the products which this firm produces has such a power that even if they increase the price the buyers will buy it because of the quality of their products. But in real-world the product such as bottled water (NESTLE PURE LIFE) one of the best selling bottled water in us it has factors such as:

1. may vary in brand identity,

2.purification method.

3. The strict government regulations, which limit the ease of entry and exit of the product.

Hence these are the factors which does not fit the price setting model and could not explain the model perfectly.

As we know nestle produces consumable products such as beverages and foods and and it can be considered for the economies of scale because the they have a huge production and also people prefer their products. There are many competitors of NESTLE:

• Mondelez.
• MARS.
• Kraft Foods.
• Danone
• Hershey's
• Heinz.
• Unilever.
• General Mills.

The Firm nestle has a high degree of market because of the differentiation, it has many sellers and buyers, easy MARKET entry and exit, it is also a price maker, Nestle has a good markups as they have much difference between the selling price of the goods and the cost..

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