A: Which of the following is an example of an oligopolistic market with a standa
ID: 2495472 • Letter: A
Question
A: Which of the following is an example of an oligopolistic market with a standardized product?
The market for automobiles.
The market for jewelry.
The market for breakfast cereal.
The market for aluminum.
B: Which of the following suppliers is most likely to be a monopolist?
A water company
A shirt producer
A lettuce farmer
A cereal producer
C: Which of the following scenarios best represents the pricing behavior of a monopolist?
Stay*Put Pins takes the market price of clothespins as given and produces the amount of clothespins where marginal revenue equals marginal cost.
Copycat Handbag Co. chooses the price it charges by estimating what its rivals are most likely to do and then taking their responses into consideration when pricing its products.
Our Drugs Inc. produces where its marginal revenue is equal to its marginal cost and prices on its downward-sloping demand curve, such that the market for its product clears knowing it will not face competition due to patents it holds on its products.
Teen Angle Hardware looks for a niche to sell its hardware products to teens, but finds that it is difficult to turn an economic profit due to other hardware stores also looking for niches.
The market for automobiles.
The market for jewelry.
The market for breakfast cereal.
The market for aluminum.
Explanation / Answer
A) An oligopoly is formed when a few companies dominate a market. Whether by noncompetitive practices, government mandate or technological savvy, these companies take advantage of their position to increase their profitability. Unlike a monopoly, where one corporation dominates a certain market, an oligopoly consists of a select few companies having significant influence over an industry.Oligopolies are noticeable in a multitude of markets. While these companies are considered competitors within the specific market, they tend to cooperate with each other to benefit as a whole, which can lead to higher prices for consumers.
In the above example Automobile as well as Aluminum industry could be termed as Oligopoly.
However, Automobile product vary widely with specifications but not Aluminum.
B) A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, barriers to entry, or governmental regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.
In the above example, a water company can be said as monopoly.
Public utilities such as electricity, railway, water are often natural monopolies because the infrastructure required to produce and deliver a product such products or services is very expensive to build and maintain. As a result, they are often government monopolies, or if privately owned, the sectors are specially regulated by a government.
C) In a monopoly market, factors like government license, ownership of resources, copyright and patent and high starting cost make an entity a single seller of goods. All these factors restrict the entry of other sellers in the market. Monopolies also possess some information that is not known to other sellers.
Characteristics associated with a monopoly market make the single seller the market controller as well as the price maker. He enjoys the power of setting the price for his goods. A monopoly has the market all to itself and faces the downward-sloping market demand curve. An important consequence is worth noticing: typically a monopoly selects a higher price and lesser quantity of output than a price-taking company; again, less is available at a higher price.
Option 3 is correct in this case.
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