a. List 4 goods or services that you have purchased that were produced by an oli

Question

a. List 4 goods or services that you have purchased that were produced by an oligopolist. Why are these industries oligopolistic rather than monopolistically competitive?
b. Why is mutual interdependence important under oligopoly, but not so important under perfect competition, monopoly or monopolistic competition? Elaborate in detail.
c. Consider this statement: “Because price equals long run average total cost, and profits are zero, a monopolistically competitive firm is an efficient as a perfectly competitive firm.” Do you agree or disagree? Elaborate in detail.

Explanation / Answer

a. Airline ticket, petrol, television and cell phone. In oligopoly market, there are few firms who sell differentiated or unique product depending upon the type of oligopoly. There are entry-exit barriers. Whereas under monopolistically competitive market there are a large number of firms who sell differentiated products. There are no entry-exit barriers.

These products I have brought are sold by only a few companies and hence these are under oligopolist market.

b. Under oligopoly, there are few firms who are competing and their response depends upon the strategy of other competing firms. If one firm decreases price, all others will also reduce the price but if one firm increases the price others will not increase price and capture the market.

In perfect competition, price and product are same and hence, there is no mutual interdependence and in monopoly, there is only one firm so no mutual interdependence.

c. This statement is not correct. The perfectly competitive firm is efficient because price equal minimum long-run average total cost and thus is productive and allocative efficient. Whereas a monopolistically competitive firm produces at price equal to decreasing long-run average total cost.

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