please answer the question thanks ! NGE LAYOUT REFERENCES MALINGS RE aqot 10, A
ID: 1139374 • Letter: P
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please answer the question thanks !
NGE LAYOUT REFERENCES MALINGS RE aqot 10, A A Aa· ·-·-· ormat Pa or B 1. Briefly state the basic characteristic of pure competition, monopoly, monopolistic competition, and oligolopy, Under which of these market classification does each of the following most accurately fit? a) a Kansas wheat farm b) the steel industry c) Jolly Green Giant Peas d) the automotive industry 2. Give an example of a negative externality and a positive externality WORDS here to searchExplanation / Answer
(1)
In pure competition there are many buyers and sellers. Each seller produces identical goods, and have no market power, therefore accept the market price as their own price. Demand curve is perfectly elastic and horizontal at market price level (demand equals marginal revenue (MR)). Firms equate price with marginal cost (MC). Entry and exit are free, so if firms make short run economic profit (loss), entry (exit) occurs until new long run equilibrium is established when firms equate price and MC with average cost (AC) and firm profit is zero.
In monopoly there is a single firm in market, and firm faces downward sloping demand (and MR) curve. Firm equates MR and MC. Entry barrier being very high, short run profit does not attract entry and firm may be able to earn profit in long run too.
In monopolistic competition, there are many buyers and sellers. Each seller produces similar but differentiated goods, and have price-setting power, facing downward sloping demand and MR curves. Firm equates MR and MC. Entry and exit are free, so if firms make short run economic profit (loss), entry (exit) occurs until new long run equilibrium is established when firms equate price with average cost (AC) and firm profit is zero. Since price is higher than MR, excess capacity exists.
In oligopoly there are few large firms domination the market. Each firm faces downward sloping demand and MR curves. Each firm's price-output decision is interdependent on the price-output decision by other firms.
Therefore,
(a) Kansas wheat firm is a pure monopolist.
(b) Steel industry is an oligopoly.
(c) Jolly Gree Giant Peas is monopolistically competitive.
(d) Automotive industry is an oligopoly.
NOTE: As per Answering Policy, 1st question has been answered.
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