10. Use the three conditions for monopolistic competition discussed in the chapt
ID: 1114077 • Letter: 1
Question
10. Use the three conditions for monopolistic competition discussed in the chapter to decide which of the following firms are likely to be operating as monopolistic competitors. If they are not monopolistically competitive firms, are they monopolists, oligopolists, or perfectly competitive firms? D. A local band that plays for weddings, parties, and so on E. Minute Maid, a producer of individual-serving juice boxes F. Your local dry cleaner G. A farmer who produces soybeans H. PSNC natural gas companyExplanation / Answer
d). There are many bands that play at weddings, parties, and so on. There are no significant barriers to entry or exit. And products are differentiated by quality (for instance, some bands have better musicians or better electronic equipment) or by style (for instance, different bands play different types of music). All three conditions for monopolistic competition are fulfilled
e)The industry for individual-serving juice boxes is dominated by a few very large firms (for example, Minute Maid, Welch’s, and Kool Aid), and there are significant barriers to entry, in part because of the large costs (for example, advertising) involved in gaining any market share of the national market. Products are, however, differentiated—in some cases, the only differences are in the minds of consumers. Because of the small number of competitors, the industry is closer to oligopoly
f)There are a large number of dry cleaners, and each produces a product differentiated by location: customers are likely to prefer to use the dry cleaner closest to their home or workplace. Thus this a monopolistically competitive industry.
g) There are a large number of soybean farmers, and there is free entry and exit in this industry. However, soybeans are not differentiated from each other—they are a standardized product. No individual soybean farmer has market power. This industry is, therefore, a perfectly competitive industry
h) Natural gas companies tend to be monopolies are regulated by the government are distributed as public utilities.
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