1. Market structures For each of the following scenarios, identify the number of
ID: 1104641 • Letter: 1
Question
1. 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. Market Model Type of Product AnythingY Scenaric Number of Firms Mo There are hundreds of high school students in need of algebra tutoring services. Dozens of companies offer tutoring services; parents view the quality of the tutoring at the different companies to be largely the same. [One Perfect Competition v,] Unique There are hundreds of colleges and universities that serve millions of college students each year. The colleges vary by location, size, and educational quality, which allows students with diverse preferences to find schools that match their needs. Only three airlines fly from San Francisco to Many [ Differentiated | | Oligopoly 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 and will shop around for the lowest price. to a popular series of books. It is the only airlines as providing basically the same service dentical Monopolistic Competition company with the legal right to publish these books in the United States.Explanation / Answer
1. Few firms; Anything; 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.
2. Many; Differentiated products; Monopolistic competition
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. Monopolistic competition combines the features of monopoly and perfect competition.
3. Few; Differentiated products; Oligopoly
4. One; No close substitutes; 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. Railways in India are a monopoly industry of the Government of India. Since, there is only one producer of a product in the market, the distinction between firm and industry disappears.
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