Attempts: Keep the Highest: /1 12. Market structures For each of the following s
ID: 1144164 • Letter: A
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Attempts: Keep the Highest: /1 12. Market structures For each of the following scenarios, identify the number of firms present, the type of product, and the appropriate market model Select the matching entry for each dropdown box in the following table. Number of Type of Product Market Model In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than its Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care about who sells them their socks. The technology for producing socks is widely known, and any reputable person who wanted to start a sock manufacturing business could obtain a loan from a bank to buy the necessary machinery In a large city, two taxi companies own all the licenses that the city will grant to operate taxis. Consumers don't care which cab company they take -if they decide it's worth taking a cab, they flag down the nearest one The government has granted the U.S. Postal Service the exclusive right to deliver mail Grade It Now Save & Continue Continue without savingExplanation / Answer
12. a) Large firms - differentiated goods - monopolistic
Monopolistic competition refers to a market situation in which there are large number of buyers and sellers. The sellers sell closely related or differentiated products but not identical product. The products are close substitutes of each other. Product differentiation is the most important feature of monopolistic competition. Each firm under monopolistic competition enjoys the monopoly over the brand of the commodity and thus the firm has the control over the price of the commodity. Under monopolistic competition, MR < AR and AR and MR curve slope downwards and MR curve lies below AR curve. But these curves are more elastic. Example: Firms producing different brands of shampoos like Sunsilk, Pantene, Head & Shoulders, Dove etc.
b) No of firms = Large
Type of product = Identical
Market Model = Perfect competition
Perfect Competition is a form of market structure in which there is free entry and exit of firms and firms are selling homogeneous and identical products in the market. Firms under this form of market are price takers rather than price makers. Industry determines the equilibrium price from the demand and supply curve intersection. Sellers can sell any unit of commodity at that price and firms does not have any price control over the commodity. If one seller try to charge higher price then it will lose all his customers because all firms are selling similar products in every respect like color, shape, brand, etc.
c) few firms - homogenous or differentiated products - Oligopoly
Oligopoly is a market structure characterized by the presence of a few large firms who produces homogeneous or differentiated products intensely competing against each other and recognizing interdependence in their decision-making. Under this type of market, prices are normally rigid as firms are afraid of immediate reactions of the rival firms which may start price war. The demand curve facing an oligopoly firm is indeterminate because of high degree of interdependence and uncertainty among oligopolistic firms. The firm does not know how his rival firms react to its decisions. Sales and profits of the firms are affected by the rivals' firm's actions. Example: there are only a few auto-producers in the Indian market. Maruti, Tata, Ford, Fiat are some well-known brand names.
d) 1 firm - close substitute goods - Monopoly
Monopoly is a form of market in which there exist only a single seller who sold goods which does not have close substitutes. There is barrier in the entry of new firms. Under monopoly, the firm is a price maker because it can fix the price for its product. It has free control over the supply of the product. A monopolist firm faces a market demand curve which is negatively sloped. It means that the firm will have to reduce the price to increase its sale. Demand curve of a firm under monopoly is less elastic because the product has no close substitutes.
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