Chapter 13, Problem 1QR

To determine

The price and output under oligopoly, monopoly, and monopolistic competition.

Explanation of Solution

A market is a place where buyers and sellers meet and interact with each other to exchange goods and services at a mutually agreed price level. The degree of competition in the market determines the nature of the market.

A market where there is only a single seller or producer is known as the monopoly market. The complete market power and control will be with the single producer itself. The market where there are only two producers is known as the duopoly market. There will be strict restrictions in the market that prevents the entry of new firms into the market. When there are a few producers, such market is known as the oligopoly market. When there are many sellers and buyers present in the market, it is referred to as monopolistic competitive market and when the number of producers is very large and the product is homogeneous, such market is known as perfectly competitive market.

Oligopoly is thus a market structure where there are some main characteristics of the monopoly as well as monopolistic competition is present. This means that the oligopoly is between the monopoly and monopolistic competition. Oligopoly is more competitive than monopoly but less competitive than the monopolistic competition. The products are slightly differentiated in monopolistic competition market and the competition amongst the players will be very high. This characteristic is present in oligopoly. The monopoly, on the other hand, has strict barriers to entry, which prevents the entrance of new firms into the market. This feature is also present in the oligopoly market. Thus, oligopoly lies in-between the monopoly and monopolistic competition.

Oligopoly lies between the monopoly and monopolistic competition. Thus, the output and price of monopoly also reflect this nature. It has a quantity that is higher than that of the monopoly and lower than the monopolistic competition. Regarding the price decision, oligopoly has a price lower than the monopoly but higher than the monopolistic competition.

Economics Concept Introduction

Market: A market is a place where buyers and sellers interact with each other to exchange goods and services at a mutually agreed price level.