Chapter 10R, Problem 23MCQ

To determine

The correct option for given situation where characteristics of oligopoly competition is required to be define as compared to monopoly.

Answer to Problem 23MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

c.

As compared to monopoly competition, the oligopoly firms have lower HHI, fewer firms and fewer barriers to entry and exit the market. In monopoly competition, theer is only one firm whose market share will be maximum. Other characteristics can be shown below:

  

Therefore, option c is correct.

Explanation for incorrect options:

a.

In monopoly competition, there exist more barriers as the sellers are the controller of the prices in the market. In oligopoly competition, there exist fewer barriers and fewer sellers. In this type of competition, HHI is lower than HHI in monopoly competition. Therefore, option a is incorrect.

b.

In oligopoly competition, HHI is lower than HHI in monopoly as in monopoly competition it is highest. Therefore, option b is incorrect.

d.

The HHI measure will be lower in the oligopoly competition as compared to the monopoly competition. But, the firms selling products are fewer in the market with fewer barriers to entry and exit. Therefore, option d is incorrect.

e.

In oligopoly, there are fewer sellers, fewer entry and exit barriers and lower HHI as compared to monopoly competition. Therefore, option e is incorrect.

Economics Concept Introduction

Herfindahl-Hirschman Index: This index refers to the measure of market competitiveness and market concentration. To compute HHI, the market share of each firm is squared and added up. The higher value of HHI indicates the higher concentration or higher competition.