Economics for Business - Answer 1

Differences between characteristics of monopoly, perfect competition, monopolistic competition and oligopoly.

Headings

Perfect competition

Monopoly

Monopolistic competition

oligopoly

Number of firms in the market

There are very large number of buyers and sellers in the market under perfect competition, firms can enter and exit without any artificial restrictions with assumption that every firm has perfect knowledge of market.

Only one firm is there in the market and thus he is responsible for total supply of goods or services in that market.

There are many sellers in the market, and one seller may slightly set higher prices without affecting the market. Its somewhere between monopoly and perfect competition .

Only few sellers are there, say two or three which own the industry and these firms are identified using concentration ratios.

Similarity of products sold

All the firms in the market are engaged sells a homogenous product like small crops, international commodity market.

The product of monopolist is unique or has no close substitutes, he is sole supplier of the product or service and control the price like government own oil industry.

Products are slightly different from each other, are close but not perfect substitutes for each other.

Firms can produce a homogenous or a differentiated product. Like aluminum industry or the car industry with two companies.

Barriers to entry

There is no barrier to entry of the firms in the market or is very easy to enter as revenues of firms are unified and cannot be altered (Ostroy & Mawkoski,2001).

No firm is allowed, or the conditions are extremely difficult reason being the ownership of vital resource, legal barriers and economies of scale (Jhingan, 2007).

Entry to such market is very easy and the seller can create his own products’ enthusiasts. Like auto industry (Hunt, 2011).

Entry into such markets is very difficult (Corchon & Marcos, 2012).

Economics for Business - Answer 2

University of NSW- University will fit in the monopolist market with the base material as education and close substitutes being different courses offered and infrastructure.

Fish and chips stores- it will fit into monopolistic competition since entry is very easy and every store has a differentiated product based on taste or complementary.

Crown casino- casinos generally fit into oligopolistic market as legal barriers makes entry difficult and only a few casinos are allowed.

Banks in Australia- There are 10 major banks in Australia, it is difficult to choose monopolistic competition and oligopoly as there is not fixed definition of number of firms in the market for oligopoly, but the factor of entry into market which is difficult in banking industry, banks will best fit in oligopoly (Corchon & marcos, 2012).

Academies Australasia polytechnic- comes under monopolistic competition as base material education and close substitutes being different courses offered.

A small stall in Melbourne- It is an example of perfect competition as prices are same and revenues do not get affected by entries into the Sunday market.

Hair salon- with the view to providing different alluring services, these salons will come under monopolistic competition as these offer same service with close substitutes in form of cleanliness, extra services etc.

Distributors of companies- These will come under monopolistic competition as distributors can vary their services in the form of credit, services and accessories.

Economics for Business - Answer 3

Barriers to entry means it is the amount of hurdles a firm faces when entering into a market, different markets have different amount of hurdles or barriers (Jhingan, 2007).

  • Ownership of vital resource- if a company or companies own the necessary resource, then it will be a great barrier.
  • Legal barriers- If an industry is owned by government or is restricted by government, then automatically, it will be a barrier.
  • Economies of scale- If an established firm is producing large amounts, the cost will be lower for it, comparing to the new firm entering and producing lower amounts.

Economics for Business - Answer 4

Ostroy & Mawkoski (2001) explain that perfect competition market can have supernormal profits only in the short run as prices cannot be manipulated according to the economies of scale. Whereas in the monopoly, the firms have enough time to change their business if the businesses are incurring losses in the short run, and can earn profits in the long run, monopoly firm can only remain in the market if it is able to earn super normal profits. Most profitable will be the point when LMC will intersect MR curve from below and SMC passes through this point.

Economics for Business - Answer 5

Non price competition is that way of competition in which firms try to attract customers in a way that is not based on price like quality, good location; unique services etc. examples of the markets are oligopoly and monopoly. Oligopoly and monopolistic competition are two such markets where non price completion prevails (Hunt, 2011).

Economics for Business - Answer 6

Diagram A shows the market situation and price elasticity of demand of monopolistic competition. The curve is near to vertical which means the price elasticity of demand is near to 0 as the imperfect knowledge of products makes it more elastic. The kinked demand curve of Sweezy also tells us that a change in price up or down will always result in decreased revenue to the firm under monopolistic competition (Hunt, 2011).

Diagram B refers to monopoly price elasticity of demand where the firm has the power to monopolize the price and the buyers have no choice but to buy it depending on the necessity of the goods or services, and that is why the demand curve is near to horizontal, going toward 1. Both monopoly and monopolistic competition, the seller cannot manipulate the prices and products supply at the same time and that is the reason that prices in both are elastic to lesser or more extent (Jhingan, 2007).

References for Economics for Business

Hunt, S. (2011). The Theory of Monopolistic Competition, Marketing’s Intellectual History, and the Product Differentiation Versus Market Segmentation Controversy. Journal of macro marketing 31 (1).

Jhingan, M.L. (2007) Monopoly. Microeconomic theory. Published by: Vrinda Publications, New Delhi, India.

Ostroy, J. & Mawkoski, L. (2001). Perfect Competition and the Creativity of the Market. DOI: 10.1257/jel.39.2.479

Corchon, L. & Marcos, F. (2012). Price Regulation in Oligopolistic Markets. Retrieved from https://doi.org/10.5402/2012/509165

Pettinger, T. (2019). Non price competition. Retrieved from https://www.economicshelp.org/blog/145423/economics/non-price-competition/

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