Economics for Business - Question 1

Basis of difference

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Number of firms in the market

There is large number of firms in the perfect competition market.

There is only single seller in the monopoly market.

There are many numbers of firms in the monopolistic competition market (Borawake, 2020).

There is small number of relatively large sized firms.

Similarity of the products sold

The firms in the perfect competition market produce identical or homogeneous goods and sell the goods on same price.

The monopolist produces goods that are unique and have no close substitutes available in the market.

The firms in the monopolistic competition market structure produces differentiated products. The substitutes of the products are easily available

Firms in oligopoly market structure produces similar but slightly different goods. They can be both differentiated and standardized.

Barriers to entry

There are no restrictions imposed on the entry and exit of firms from the industry. Any firm can easily enter the perfect competition industry. Also, there is ease of entry in this type of industry.

There are significant barriers have been imposed to enter the monopoly market like patents, large amount of resources, huge financial resources, etc. Thus, no firm can enter this market.

To enter in the monopolistic competitive market is relatively easy as there are no entry barriers that are to be faced by the new entrants in this industry.

There are significant barriers are being imposed to enter oligopoly market structure.

Economics for Business - Question 2

  1. Coles and Woolworths supermarket: They both operate in the oligopoly market structure as in the whole supermarket industry, these two firms are large that dominates the whole market. The major products sold by these companies are fruits, nuts, milk, vegetables, frozen meat, etc. Also, there are some significant barriers to enter this industry.
  2. Burger restaurant: Monopolistic competition market type of market structure describes the best the burger restaurant as it is undertaking various measures to differentiate its burgers from other rival firms in the same industry. It is providing vegetarian burgers also in order to mark differentiation.
  3. The Hoyts chain of cinemas: This is categorized under the oligopoly type of market structure as these are large and exercise considerable power over prices.
  4. Yarra Tram or Sydney Train: This comes under the monopoly market structure as the rail network of Sydney is owned and managed by RailCorp which is under the ownership of NSW State Government.
  5. Westpac Banking Corporation in Australia: This is an Australian public bank. This will be categorized under oligopoly market structure as there are few large public banks in Australia that dominates the finance industry.
  6. Academies Australasia Polytechnic: Monopolistic competition best describes the market structure of Academies Australasia Polytechnic as there are various institutions that are part of this industry. Therefore, there is availability of close substitutes.
  7. A small store selling souvenirs: Perfect competition market structure best describes the small stores. There is large number of similar kind of these stores selling the same goods at almost similar prices.
  8. Iphone and Samsung in mobile phone industry: This comes under the monopolistic competition market structure as there is large number of sellers of mobiles. They differentiate their products from other rivals firms.

Economics for Business - Question 3

3 a) Price discrimination: It is defined as the strategy used by the monopolist of charging different prices from different customers for the same good and service (Wang & Hu, 2019). For example: Price discrimination is practiced by airline industry. The customers who have booked the tickets in advance several months before their journey have to pay less price than the customers who buy the tickets at last moments. Another example is cinema halls. It charges different charges from different people for the same movie.

3b) Argument for and against price discrimination

Price discrimination will help in charging lower price from the customers who have lower income. Thus, makes the foods affordable for the poorer customers (Jing, 2017).

However, price discrimination may lead to earning of abnormal profits by the monopolist as he has the power to charge any price from different categories of customers, being the single seller in the market.

Economics for Business - Question 4

Mutual dependence is experienced by oligopoly market structure the most. In oligopoly structure, the firms are large but few in number and provides similar or very less differentiated products to the customers. The pricing strategy used by one firm depends largely on the reaction from the other rival firms in the industry (Bayar et al., 2018). If one firm lower the prices of its products then it may fetch increase in demand as other firms in the industry might have done the same. Thus, the pricing strategies are based on whether the firms are acting as rivals or collision and whether they want to act like a price follower or price setter.

Economics for Business - Question 5

5a) Compare and describe the similarities between different measurements of elasticity

 

Price elasticity of demand

Income elasticity of demand

Cross price elasticity of demand

Comparison

This measures the responsiveness of demand with regard to change in price of the commodity (Sabatelli, 2016).

This measures the responsiveness of demand with regard to change in income of the consumer.

This measures the responsiveness of demand of one good followed by a change in price of other good.

Similarity: All these three types of elasticies measures responsiveness in demand of a commodity taking different items in denominator.

5b) Firms in the tourism sector would be more adversely affected by the downturn in the economy. This is because tourism is categorized as luxury for which the demand is elastic. The journey can be postponed easily. On the other hand, supermarket supplies necessary goods like fruits, vegetables, eggs, frozen meat, etc. which are essential for survival. The demand for these goods would not be affected by the change in income of the consumers.

5c) To enter a market where the demand for the products and services is price elastic would have greater chance of success because the demand in this market changes with the change in price of the commodity. If the new firm charges lower prices for its products and services as compared to its competitors then the customers will switch to this new firm.

5d) Firm A belongs to the perfect competition market as here, the goods are being sold at the same price. In perfect competition market, a firm can sell any quantity of goods at the price decided by the industry.

Firm B belongs to monopoly market structure as the demand curve is sloping downwards. High price would lead to low quantity demanded by the customers and low price would lead to high demand for the commodities.

References for Economics for Business

Bayar, T., Cornett, M. M., Erhemjamts, O., Leverty, T., & Tehranian, H. (2018). An examination of the relation between strategic interaction among industry firms and firm performance. Journal of Banking & Finance87, 248-263.

Borawake, K. (2020). Reference material for the topic Imperfect Competition.

Jing, B. (2017). Behavior-based pricing, production efficiency, and quality differentiation. Management Science63(7), 2365-2376.

Sabatelli, L. (2016). Relationship between the uncompensated price elasticity and the income elasticity of demand under conditions of additive preferences. PloS one11(3).

Wang, T., & Hu, M. Y. (2019). Differential pricing with consumers’ valuation uncertainty by a monopoly. Journal of Revenue and Pricing Management18(3), 247-255.

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Economics Assignment Help

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