Question

The automobile industry is an example of a(n):

	a.	monopolistically competitive market because firms in the automobile industry face an upward-sloping demand curve.
	b.	monopolistically competitive market for legal reasons.
	c.	oligopoly for legal reasons.
	d.	monopolistically competitive market because it experiences economies of scale.
	e.	oligopoly because each firm must produce a large amount of output before it can achieve low average costs.

Answer 1

Option e

Oligopoly market has few firms, and also automobile market has few firms. The industry requires large cost, and also oligopoly has a large cost as a barrier to entry so the market is an example of an oligopoly. The average total cost decreases as output increases because there is a large fixed cost in the market.

The monopolistic competitive market has many firms with a small share of the market, and it does not have large cost as a barrier to entry.