Question

Briefly state the basic characteristics of pure competition, 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 and your family has an account (e) the automobile industry. In each case justify your answer.

Answer 1

Answer:

A Pure competition has the following characteristics

1) Homo genus goods

2) Price Taker

3) Normal profits in the long run

4) Low barriers to exit and entry

5) Very high number of firms

6) Perfect Information

A Pure monopoly has the following characteristics

1) Only one firm in the whole industry

2) Price Setter

3) Very high barriers to entry and exit

4) Super normal profits in the long run

Monopolistic competition

1) Imperfect Information

2) Product Differentiation

3) Low barriers to entry and exit

4) Normal Profits in the long run

Oligopoly

1) Small number of firms

2) Price setter

3) Product Can be homo genus or differentiated

4) High barriers to entry and exit

(a) a supermarket in your hometown= Monopolistic competition as there is little product differentiation, low barriers to entry and exit and high number of firms.

b) the steel industry is an example of homo genus oligopoly as the product is the same and firms are few and barriers to entry and exit are high

(c) a kansas wheat farm: Pure Competition, the reason for this is that there is perfect competition, low barrier to entry and exit and they are price takers

(d) the commercial bank in which you and your family has an account : It is an example of Oligopoly as high barriers to entry, few number of firms and product is homo-genus

(e) the automobile industry: Oligopoly as high barriers to entry, differentiated products, Super normal profits in the long term and small number of firms.

Explanation: