Subpart (a):
The market structure.
Subpart (a):
Explanation of Solution
A hometown supermarket is an oligopoly market because supermarkets are few in the economic market and the size of the market makes it difficult to make a new entry and one which is non price competition. This is because there is much competition in the market as they compete for market share and there is no collusion and some of the areas behave like a monopolistic market.
Concept introduction:
Pure competition:
Pure
Oligopoly: Oligopoly refers to the market structure which features few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves, but there is no price competition. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.
Subpart (b):
The market structure.
Subpart (b):
Explanation of Solution
In a domestic production market, the steel industry is an oligopoly because there are a small number of firms and the products are standardized. The size makes it difficult for new entries and there is non- price competition and no collusion.
Concept introduction:
Pure competition: Perfect competition refers to the market structure which features more number of sellers and buyers in the market and the firm can sell homogenous products.
Pure monopoly: Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of the firm. Hence, there are no substitute goods available in the market.
Monopolistic competition: Monopolistic competition refers to the market structure with the feature of more firms producing differentiated goods. These goods are called substitute goods: but they are not perfect substitutes. There is no restriction to enter the business. Firms are price makers.
Oligopoly: Oligopoly refers to the market structure which features few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves, but there is no price competition. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.
Subpart (c):
The market structure.
Subpart (c):
Explanation of Solution
Wheat farms are pure competition in the market because there are a number of similar farms and the products are standardized. Also, there is no control over the price and no non-price competition. Since the cost of acquiring land from a present proprietor is large, entry is difficult.
Concept introduction:
Pure competition: Perfect competition refers to the market structure which features more number of sellers and buyers in the market and the firm can sell homogenous products.
Pure monopoly: Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of the firm. Hence, there are no substitute goods available in the market.
Monopolistic competition: Monopolistic competition refers to the market structure with the feature of more firms producing differentiated goods. These goods are called substitute goods: but they are not perfect substitutes. There is no restriction to enter the business. Firms are price makers.
Oligopoly: Oligopoly refers to the market structure which features few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves, but there is no price competition. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.
Subpart (d):
The market structure.
Subpart (d):
Explanation of Solution
Commercial banks are in a monopolistic competition because there are many similar banks, the services are differentiated, and there is price control mostly in interest. Entry in the market is easy and there is much advertisement. Not every bank fits in the description of the monopolistic market; some smaller places act as a monopoly or an oligopoly.
Concept introduction:
Pure competition: Perfect competition refers to the market structure which features more number of sellers and buyers in the market and the firm can sell homogenous products.
Pure monopoly: Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of the firm. Hence, there are no substitute goods available in the market.
Monopolistic competition: Monopolistic competition refers to the market structure with the feature of more firms producing differentiated goods. These goods are called substitute goods: but they are not perfect substitutes. There is no restriction to enter the business. Firms are price makers.
Oligopoly: Oligopoly refers to the market structure which features few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves, but there is no price competition. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.
Subpart (e):
The market structure.
Subpart (e):
Explanation of Solution
Automobile industries are an oligopoly because there are three big automakers in a market, the products are differentiated, and their size makes it difficult for new entries. There is also a lot of non-price competition; it does not appear to have no collusion and there is little price competition. Thus, imports make the industry more competitive and reduce the market power of US automakers.
Concept introduction:
Pure competition: Perfect competition refers to the market structure which features more number of sellers and buyers in the market and the firm can sell homogenous products.
Pure monopoly: Monopoly refers to the market structure with the features of a single seller and more buyers. Firms have full control over the market. Price is fixed by the monopoly producer. There is a restriction for entry of the firm. Hence, there are no substitute goods available in the market.
Monopolistic competition: Monopolistic competition refers to the market structure with the feature of more firms producing differentiated goods. These goods are called substitute goods: but they are not perfect substitutes. There is no restriction to enter the business. Firms are price makers.
Oligopoly: Oligopoly refers to the market structure which features few sellers and more buyers. Oligopoly firms produce homogenous goods and are competing with themselves, but there is no price competition. There is no easy entry in to the market due to huge investment. Information about the market is unavailable.
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Chapter 10 Solutions
MICROECONOMICS CONNECT STUDY GUIDE
- 6. The accompanying diagram shows the demand, marginal revenue, and marginal cost of a monopolist. (LO1, LO3, LO5) a. Determine the profit-maximizing output and price. b. What price and output would prevail if this firm’s product were sold by price-taking firms in a perfectly competitive market? c. Calculate the deadweight loss of this monopoly. 8. The elasticity of demand for a firm’s product is –2.5 and its advertising elasticity of demand is 0.2. (LO8) a. Determine the firm’s optimal advertising-to-sales ratio. b. If the firm’s revenues are $40,000, what is its profit-maximizing level of advertising?arrow_forward7. You are the manager of a monopolistically competitive firm, and your demand and costfunctions are given by Q = 36 − 4P and C(Q) = 4 + 4Q + Q2. (LO1, LO3, LO5)a. Find the inverse demand function for your firm’s product.arrow_forward9. Suppose Warner Music and Universal Music are in a duopoly and currently limit themselves to 10 new artists per year. One artist sells 2 million songs at $1.25 per song. However, each label is capable of signing 20 artists per year. If one label increases the number of artists to 20 and the other stays the same, the price per song drops to $0.75, and each artist sells 3 million songs. If both labels increase the number of artists to 20, the price per song drops to $0.30, and each artist sells 4 million songs. Explain how revenue payoffs for each scenario are calculated. If this game is played once, how many artists will each producer sign, and what will be the price of a song? If this game is played every year, how many artists will each producer sign, and what will be the price of a song?arrow_forward
- 14. Aside from advertising, how can monopolisticallycompetitive firms increase demand for their products? 17. Would you expect the kinked demand curve to bemore extreme (like a right angle) or less extreme (like anormal demand curve) if each firm in the cartel producesa near-identical product like OPEC and petroleum?What if each firm produces a somewhat differentproduct? Explain your reasoning.arrow_forward2. Describe the fundamental difference between pure competition and non-collusive oligopoly. 3. How do economies of scale and product differentiation (both desirable qualities) alter the nature of markets in the real world in negative ways? 4. What keeps oligopolistic industries from abusing the market power they hold, forming into collusive cartels, or merging into dominant monopolies? 5. What does society do to undermine the macroeconomic impacts of the chaotic nature of continuous product differentiation by monopolistically competitive firms? 6. If these two market types, monopolistic competition and non-collusive oligopoly, not pure competition, make up 90% of the market reality that we live in what lesson is to be learned?arrow_forward11 21. Imagine an N firm oligopoly for "nominally differentiated" goods. That is, each of the N firms produces a product that "looks" different from the products of its competitors, but that "really" isn't any different. However, each firm is able to fool some of the buying public. Specifically, each of the N firms (which are identical and have zero marginal cost of production) has a captive market -consumers who will buy only from that firm. The demand generated by each of these captive markets is given by the demand function Pn A- Xn , where Xn is the amount supplied to this captive market and Pn is the price of the production of firm n. There is also a group of intelligent consumers who realize that the products are really undifferentiated. These…arrow_forward
- As the manager of a monopoly, you face potential government regulation. Your inversedemand is P = 40 − 2Q, and your costs are C(Q) = 8Q. (LO1, LO2, LO6)a. Determine the monopoly price and output.arrow_forwardGive some examples of fixed costs and variable costs. Why do average fixed costs decline across a range of increasing production? Do average variable cost decline, increase, or do both as production increases? Explain. Tell me about perfect competition. Why is it that perfect competition is more of a theoretical market structure than a practical one? In addition, please explain the most important characteristic in perfect competition, monopolistic competition, oligopoly, and monopolies and relate the characteristic to how these firms can make profits in the short run. In your analysis, make sure to relate an example for each of the market structures listed and how it relates to the particular characteristics.arrow_forwardConsider the curve in the figure below, which shows the market demand. marginal cost, and marginal revenue curve for firms in an oligopolistic industry. In this example, we assume firms have zero fixed costs. Suppose the firms collude to form a cartel. What price will the cartel charge? What quantity will the cartel supply? How much profit will the cartel earn? Suppose now that the cane] breaks up and the oligopolistic firms compete as vigorously as possible by cutting the price and increasing sales. What will be the industry quantity and price? What will be the collective profits of all firms in the industry? Compare the equilibrium price, quantity, and profit for the cartel and cutthroat competition outcomes.arrow_forward
- Explain what is Oligopoly and duopoly? Are firms in Oligopoly large firms or small firms? What is product differentiation, price discrimination and profit maximization under Oligopoly? Give two examples each of product differentiation and price discrimination. What is the optimum point of production and minimum cost point of a firm under Oligopoly? Explain and draw AR and MR curves as (a) kinked demand curve; (b) Collusion (cartels) and (c) Price leadership model.arrow_forward2. Suppose that the market demand for mountain spring water is given as follows: P = 1,200 - QMountain spring water can be produced at no cost. a. What is the profit maximizing level of output and price of a monopolist? b. What level of output would be produced by each firm in a Cournot duopoly in the long run? What will the price be? c. What will be the level of output and price in the long run if this industry were perfectly competitive?arrow_forward4. Discuss reasons and conditions under which a monopoly or an oligopoly, despite its market power, might result in a better allocation of the economy's scarce resources than a purely competitive industry.arrow_forward
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax