Question

1. Explain what a Monopolistic competition is and an Oligopoly is and their unique characteristics

2. Please explain what profit maximization is and how to find it in Both

3. Give an example of a business in each

4. Which market is more inelastic and why?

5. There is a term that is used in association with oligopolies called Game Theory. Please explain what it is and how organizations use this to possibly increase market share.

6. What is Collusion and how is it used in Oligopolies (cartel)

Answer 1

1) Monopolistic competition is a market structure characterised by a large number of firms selling differentiated products having close substitutes. There is freedom of entry and exit in the market. Firms are price makers under monopolistic competition because the good is highly differentiated. Firms could make supernormal profits in the short term but makes only normal profits in the long run due to freedom of entry and exit.

Oligopoly is a market structure characterised by few firms selling homogenous or differentiated products. Here the market is dominated by a few large firms. The firms are interdependent on each other's decision and firms often collude. There is barriers to entry under this market. Firms could earn super normal profits even in the long run.