Question

In each blank below, write the one of the four market environments that is most accurately being described by each situation: perfect competition, monopolistic competition, oligopoly, or monopoly. (Each blank is worth 3 points.)

a) Carcinocillin is a brand new powerful anti-stroke drug with a patent. It is a unique product with no close substitutes. ____________________________________________________

b) Ron’s Farmers Market is in the agricultural industry with no barriers to entry, competing with more than 5,000 other farmers’ markets, each one producing the exact same type of wheat. ____________________________________________________

c) Alternative Products produces a key input that is used in automobile manufacturing. The firm is quite large and notices that every time it changes its advertising strategy, its three other rivals soon follow suit by changing their strategy. ____________________________________________________

d) Lexington Ice Cream has a Lerner Index that is very close (but NOT equal) to zero. ____________________________________________________

Answer 1

a) Monopoly : since company has got a patent and there are no close substitutes , this market has characteristics of a monopoly where there is a single producer with product with no close substitutes

b) Perfect competition : Since there are large number of other producers producing exactly the same product ( homogenous) with no barriers to entry and exit , it is perfect competition

c) Oligopoly : Firms are large in size with only few rivals (3) and change in advertising strategy by one leads to change in strategy by other

d) Monopolistic competition : Since learner index is close to 0 but not 0 , this is a feature of monopolistic competition which has characteristics of both monopoly and perfect competition so learner index is not equal to 0