2. Market structures For each of the following scenarios, identify the number of
ID: 1153713 • Letter: 2
Question
2. 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 Scenario A large city has lots of small shops where people can buy sweaters Each store's sweaters reflect the style of that particular store Additionally, some stores use higher-quality cotton than others which is reflected in their price Firms Type of Product Market Model Many Few There are hundreds of high school students in need of algebra One tutoring services . Dozens of companies offer tutoring services; parents view the quality of the tutoring at the different companies to be largely the same Only three airlines fly from San Francisco to Medford, Oregon. No new airline will enter this market, because there are not enough customers to share among four or more airlines without each one experiencing substantially higher average costs. Consumers view all airlines as providing basically the same service and will shop around for the lowest price A publishing company owns the U.S. copyright to a popular series of books. It is the only company with the legal right to publish these books in the United StatesExplanation / Answer
scenario 1 will be monopolistic competition because the sweater shops are large in number and are differentiated by quality and branding but they are not perfect substitutes. producers have degree of control over the prices since the good quality would be differnetiated and hence be sold at a higher price.
scenario 2 will be perfect competition since the parents view the tutoring services as largely identical and there are a large number of such services , They act as perfect substitutes so an increase in price will lead the parents to the other companies. All these are characteristics of perfect competition
scenario 3 will be few number of firms as given ie we have 3 firms. the investment in this market is heavy ie airlines requires a lot of investment . The barriers are high because entry of another firm will increase the average cost. The competition will be fierce because the customers are going for low cost flights . so the answer is oligopoly . The product would be homogeneous or differentiated. in case of homogeneous it is pure oligopoly and with differentiated it is impure oligopoly . Here since the customers are viewing the services basically the same we have homogeneous or identical services and products.
scenario 4 will be monopoly because the publishing company has the copyright (sole right )and also the series will be unique so the product is a single product . Also there is restriction on entry and exit since the single firm owns the right . Hence monopoly
Number of firms type of product market model scenario 1 many differentiated monopolistic competition scenario 2 many identical perfect competition scenario 3 few identical oligopoly scenario 4 one unique monopolyRelated Questions
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