For each of the following scenarios, determine which market model best describes the scenario. Then identify the number of firms, the type of product, and the ease with which new firms can enter the market under this market structure.
Scenario:
Many small shops sell different styles of sweaters. Some stores sell higher-quality and more expensive sweaters than other stores.
Dozens of companies produce plain white socks. The standard technology for producing socks is widely known and available to anyone who wants to enter the business.
Four Internet providers offer similar services to almost everyone in the city. Any new company would have to engage in a price war with the existing companies.
Only one pharmaceutical company has a government patent to sell an experimental drug.
| Market Model | Number of Firms | Type of Product | Entry |
|---|---|---|---|
Answer (2)
The scenarios illustrate four different market models: monopolistic competition for shops selling sweaters, perfect competition for sock manufacturers, oligopoly for internet service providers, and monopoly for the pharmaceutical company with a patent. Each model is characterized by the number of firms, type of product, and ease of entry for new firms. Understanding these differences is crucial for analyzing market behavior. ;
The scenarios fall under four distinct market models: monopolistic competition for sweater shops, perfect competition for sock manufacturers, oligopoly for internet providers, and monopoly for the patented drug company. Each model has unique characteristics regarding number of firms, product type, and entry barriers. Understanding these differences aids in analyzing market behavior effectively.
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