Economic analysis

The Tap island corn farmers were operating in a perfect competition market structure before Mega Company got into the corn industry. Perfect competition refers to a market structure with many small sellers who are competing against one another such that the action of one firm does not have considerable power in the market. In this market, the firms sell identical products and consumer preference does not exist, while firms can freely enter and exit the market (Gottheil, 2013). The Tap Island market is made of farmers cum sellers with identical type of corn which means that the buyers in this market do not have different choices of the product and hence, cannot develop preference. Moreover, the sellers compete fiercely as they try to market undifferentiated product in the market which brings the prices low.

When Mega Company enters the market and buys the corn from the farmers for packaging and then reselling, the market structure changes completely to a monopoly. In monopoly structure, the market has a single firm with control over the whole market so that it has the highest degree of market power. In addition, the firm is the only one selling the product which means that consumers have no alternative. The monopolistic firm has the power to increase the market prices of the product so as to earn more profits. A monopolistic firm sets the market prices and dominates the market so that there is not competition (Gottheil, 2013). By buying all the corns from the farmers and processing it to sell in the market, it starts to increase the prices in the market as seen by the Tapese.

Reference

Gottheil, F. (2013). Principles of macroeconomics. Nelson Education.