Answer to Question #98316 in Microeconomics for Shafiqah

Answer to Question #98316 in Microeconomics for Shafiqah


Question #98316

1- i.Explain the difference between a perfectly competitive market and a monopolistic market using a suitable graph.
ii.What are the characteristics of an oligopolistic competition?

Expert’s answer

In Monopolistic competition, firms do produce differentiated products, therefore, they are not price takers (perfectly elastic demand). They have inelastic demand.An oligopoly is an industry dominated by a few large firms. For example, an industry with a five-firm concentration ratio of greater than 50% is considered a monopoly.There are different possible ways that firms in oligopoly will compete and behave this will depend upon:The objectives of the firms; e.g. profit maximisation or sales maximisation?The degree of contestability; i.e. barriers to entry.Government regulation.There are different possible outcomes for oligopoly:Stable prices (e.g. through kinked demand curve) – firms concentrate on non-price competition.Price wars (competitive oligopoly)Collusion- leading to higher prices.

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