The Theory of the Firm, Labor Markets, and Imperfect Information

According to Friedman (1962), the term “monopolistic” refers to exclusive control by one group of the means of producing or selling a commodity or service. This creates monopoly which results from government support or from collusive agreements among individuals who want to control prices of commodities in order to get maximum profits. On the other hand, a monopolistic competition is a form of imperfect competition, There are many producers in the market but they sell products that are differentiated from one another as goods but not perfect substitutes. In this market, firms take the prices charged by their competitors as given and ignore the effects of their own set prices on the prices of other firms. A monopolistic competitive markets possess some characteristics of a monopoly market, especially in the short run. It uses the market power to make profits. Some of the characteristics that make a market monopolistic include the firms’ striving to acquire monopolistic state, that’s why they act like monopolies in the short run. A monopolistic competitive market has many seller and many buyers in the market, therefore, no firm has control in determination of market prices. The producers who sell differentiated products have slight sense of price control because of their differentiated products. There are few barriers to entry and exit of the market.  The consumer’s perspective is that there are non-price differences among the competitors’ products that the sellers present in the market. These characteristics bear  monopolistic completion.

A perfect competitive market, though it exists as an idea, is quit desirable market due to its distinctive features as its main aim is to encourage development of the country. A perfect competitive market possesses good characteristics such as it has many buyers and sellers. The buyers and sellers have a perfect knowledge of the market. Free entry and exit of the market are achievable. Mostly, the buyers sell homogenous products which have very close substitutes. The market is a price giver and no individual firm is able control the prices of the commodities. This is because the prices are determined by the forces of demand and supply of products. These characteristics are quite distinctive, in comparison with monopolistic competition market.

In most cases, movie theaters charge operations on price discrimination depending on either the gender, age, or the time period of the day. Some of the reasons for price discrimination include the individual source of income. They mainly charge the employed people with higher prices than children. They know that the children would rely on parents to support them and, therefore, they try to attract more children so as to boosts their morale. The movie theaters normally carry out price discriminations in order to maximize profits. This is because the people are charged according to what they can bear. The movie theaters do not incur extra costs and, therefore, they increase profits. Price discrimination can only be possible where the sellers know that the consumer does not have perfect knowledge about the costs incurred. They also charge different charges in different time of the day in order to attract the customers.

Through, price discriminations, such as charging different prices on different individuals, enable the movie theaters owners to create a barrier for the customers to go to another particular place and get the satisfaction of watching the movie. The movie theaters, in the majority of cases, are able to get normal profits and, therefore, do not become bankrupt.

The insurance companies would not be able to take a policy on some definite individual without that person undergoing a physical examination. Physical examination refers to tests conducted by a doctor to a patient so as determine the health of an individual. One of the main conditions required for one to sign a policy in the insurance company is the medical document and, especially, life insurance policies. The physical examination enables the insurance company to determine the premium that a person is supposed to pay. It is also used as reference in case of the need for compensation. The insurance companies want to know whether someone’s health conditions would eventually affect the individual. The medical health conditions help the insurance companies to determine whether to accept someone’s application or not.  The insurance companies may not be willing to cover people of old age, someone affected by certain diseases, such as HIV aids, since he or she is in high risk of death. It is a requirement of the law that the insurance companies, before they accept to undertake any policy, must become insured to take a medical policy.

The medical physical examination of the insured acts as a point reference, especially in case when an insured beneficiary wants beneficiaries. It will also ensure the insured beneficiaries. The doctor’s physical examination on the heath of the person helps to know exactly whom the policy is undertaken to. The insurance companies, with the help of the medical physical examination, determine whether the insured is likely to survive and, hence, may be useful in gauging the premiums to be paid. The higher the chances of unfitness of potential insured, the higher the premiums he is to pay. The medical examination also focuses on the age of the individual. The older one is, the higher the premiums to pay, and the younger the insured is, the lower the premiums to pay. Therefore, the insurance medical examination is one of the determinants of taking a life insurance policy.

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