Market Structures and Pricing

Question 1

Types of Market Structure and Pricing

Answer 1

1. Perfect Competition
2. Monopolistic Competition
3. Oligopoly
4. Monopoly

Question 2

In Perfect Competitive Market

Answer 2

NO Individual Firm can Influence the Market Price of its Product.

Question 3

What are the Market conditions under Perfect Competition?

Answer 3

a) A Large number of suppliers and customers acting independently, Firms are small related
to the Industry
b) No Barriers to Entry
c) Very Little Product Differentiation (Homogeneous Products)
d) Firms are Price Takers i.e. Price is Set by Market
e) Firms control only the Quantity Produced
f) Demand is Perfectly Elastic
g) Economic profits are “0”

Question 4

if an Entity operates in perfectly competitive market structure, what strategies should the Entity adopt?

Answer 4

Maintaining the Market Share

Responsiveness of
the Sales price (they have no control over price)

Question 5

What are the Market conditions under Monopolistic Competition?

Answer 5

a) Numerous firms with differentiated products, Firms are small related to the Industry
b) Few Barriers to entry
c) Firms exert some Influence over the Price and market through differentiation
d) Differentiation results in a highly elastic but downward-sloping demand curve
e) Economic profits are “0”

Question 6

if an Entity operates in Monopolistic competitive market structure, what strategies should the Entity adopt?

Answer 6

Maintaining the Market Share

Focus on Differentiation

extensive allocation of resources to advertising, marketing, product, research etc.

Question 7

What are the Market conditions under Oligopoly?

Answer 7

a) Relatively Few Firms with Differentiated products, Firms are Large related to the Industry
b) Fairly Significant barriers to entry
c) Products are differentiated and Firms have control over both the quantity produced and the price changed.
d) Strongly Interdependent Firms
e) Oligopolists face a kinked (bent) demand curve because Firms match price cuts of competitors but ignore price Increases

Question 8

if an Entity operates in Oligopoly market structure, what strategies should the Entity adopt?

Answer 8

Focus on Market share and

call for proper amount of
Advertising to ensure appropriate Product Differentiation

and ways to properly
adapt to price changes or required changes in production volume.

Question 9

What are the Market conditions under Monopoly?

Answer 9

A Single Firm with a Unique Product, It is a 100% Industry

b) Insurmountable Barriers to Market entry (i.e. No one can overcome this entity)
c) They are Price Setters and sets Output as well (i.e. Not price dependent or Price Takers)
d) No Substitute Product and Demand is Inelastic
e) Because of Insurmountable barriers, Economic profits are Positive in Long Run

Question 10

if an Entity operates in Monopoly market structure, what strategies should the Entity adopt?

Answer 10

ignore market share and

focus on profitability from
production levels that maximize profits.

Question 11

Regardless of the Model that represent the Industry, the Firm will Operate at its
BEST when

Answer 11

Marginal Revenue EQUALS Marginal Cost