Market Structure Review Questions
Answer the following questions based on the video you just watched
- Which market structure(s) will have zero economic profits in the long run?
Perfect Competition Market structure.
- Which market structure(s) will be a price maker and have barriers to entry?
Monopoly market structure
- There are currently 8 firms in a particular market. Their firm sales are given in the table below. What is the four-firm concentration ratio for this industry? Would you classify it as an oligopoly?
Don't use plagiarised sources.Get your custom essay just from $11/page
| Firm | Sales |
| 1 | $1,000 |
| 2 | $1,500 |
| 3 | $2,000 |
| 4 | $2,500 |
| 5 | $3,000 |
| 6 | $1,000 |
| 7 | $500 |
| 8 | $2,500 |
CR4 = (X1+X2 + X3 + X4)
T
CR4 = (3,000 + 2,500 + 2,500 + 2,000) = 10,000
14,000 14,000
CR4 = 0.7143 × 100 = 71.43%
A concentration ratio of between 40% up to 70% usually indicates a medium concentration that is an oligopoly market. I would, therefore, Classify the industry as an Oligopoly.
- Although market structures vary widely in their characteristics, what is one common aspect among all of them? Does your previous answer have any potential calculation?
One common aspect of all the market structures that have been analyzed in the video is that they can serve a large number of consumers and people. Another element that cuts across all the firms is the drive and motive to earn a profit. When calculating the economic profit for the firms, it is evident that in the long run, the profit will accrue to zero for almost all of the firms.
- In the long run, which market structures are likely to have their average cost curve sit on top of their demand curve? What does this imply for each market structure? Are there any differences in the market structures you gave in your previous answer?
monopolistically competitive markets and oligopolies are likely to have their average cost curve sit on top of their demand curve. Since a monopoly infrastructure is a primary dealer for an item with no substitutable substitute. By differentiation, because of the free passage into the monopolistic rivalry showcase, the financial returns of the business in this market frame are crushed down to zero. Because in the long run, firms decide to supply less or more in the market and its demand curve. But the number of firms operating in oligopolies is smaller, profits are more significant, and demand is inelastic.
- What market structure(s) likely to cause a net loss to societal welfare?
The market structure that will potentially cause a net loss to societal welfare is the monopoly market structure. This because monopoly markets usually tend to produce low-quality products, yet they charge incredibly high prices for their goods, therefore, leading to a net loss.