Market Structures

Question 1

In which form of market structure is a “price war” most likely possible?

Answer 1

Oligopoly, because each firm in the industry is aware of the actions of other firms in the industry.

Question 2

Describe the justification for natural monopolies.

Answer 2

A monopoly exists where there is a single provider of a commodity for which there are no close substitutes and where entry into the market is difficult. Natural monopolies exist where there is increasing return to scale of operations and is justified by a single entity being able to satisfy demand at a lower cost than two or more firms. Public utilities have been cited traditionally as examples of natural monopolies.

Question 3

Describe a market structure that includes only a few providers.

Answer 3

Oligopoly market. In an oligopoly market, there are few providers of goods or services. In a monopoly there is only one provider; in perfect competition or monopolistic competition there are many providers.

Question 4

Describe the nature of the market structure in the U.S. economy.

Answer 4

The U.S. economy is a mix of market structures with different commodities/industries operating in different market structures.

Question 5

Describe the least likely market structure in the U.S. economy.

Answer 5

Perfect Competition. A market or industry with all of the criteria of perfect competition is virtually nonexistent in the U.S. economy. Monopoly, monopolistic competition and oligopoly markets are common.