Basic Characteristics of Market Structures
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1. List the basic characteristics of pure monopoly, monopolistic competition and oligopoly. Under which of these market classifications does each of the following most accurately fit? (a) a supermarket in your hometown; (b) the steel industry; (c) a Kansas wheat farm; (d) the commercial bank in which you or your family has an account; (e) the automobile industry. In each case justify your classification.
2. In long-run equilibrium, pure competition we have P = minimum ATC = MC. Of what significance for economic efficiency is the equality of P and minimum ATC? The equality of P and MC? Distinguish between productive efficiency and allocative efficiency in your answer.
3. Discuss the major barriers to entry into an industry. Explain how each barrier can foster monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable?
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Solution Summary
basic characteristics of pure monopoly, monopolistic competition and oligopoly; long-run equilibrium and barriers to entry for monopoly and
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1. Monopolistic competition is characterized by many firms with very similar products. In the long run for monopolistic competition, when one firm is profitable, it will attract competitors. This fosters advertising as each firm attempts to differentiate its product by brand name. At the long run equilibrium MR=MC < P = AC (above the minimum)
An oligopoly is a market dominated by a few large suppliers due to barriers to entry. In some cases these firms collude, while in others they compete fiercely, resulting in excessive advertising.
In pure competition there are many firms with identical products. All firms are price takers at the industry equilibrium price. There are no barriers to entry. At the long run ...
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