Question

Monopolistic Competition and Product Differentiation - End of Chapter Problem 1. Use the three conditions for monopolistic competition discussed in the chapter to decide which of the following firms are likely to be operating as monopolistic competitors. If they are not monopolistically competitive firms, are they monopolists, oligopolists, or perfectly competitive firms? a. A local band that plays for weddings, parties, and other events b. Minute Maid, a producer of individual-serving juice boxes c. Your local dry cleaner d. A farmer who produces soybeans Place each firm according to the type of market in which it operates. Perfect competition Monopolistic competition Oligopoly Monopoly Answer Bank Soybean farmer Local band Dry cleaner Minute Maid

Answer 1

ANSWER:

Three conditions of monopolistic conditions are

(1) a large number of producers

(2) differentiated products  

(3) free entry and exit.

so lets place each firm according to the type of market in which it operates

A) A local band that plays for weddings, parties, and other events

There are so many bands that play at weddings, parties, and other events. There are no specific barriers to entry or exit. And products are differentiated by quality (better musicians, better instrument and so on) or by style ( different bands play different types of music). All three conditions for monopolistic competition are fulfilled. so it is placed under Monopolistic competition.

B)  Minute Maid, a producer of individual-serving juice boxes

In this type of industry that are serving individual juce boxesare dominated by only few large firms and there are some significant barriers for entry because of the large costs involved in gaining consumer attraction in any market share of the national market. Products are, however, differentiated in some cases, the only differences are in the minds of consumers. Because of the small number of competitors, the industry is placed under oligopoly

C) . Your local dry cleaner

There are a large number of dry cleaners, and each produces a product differentiated by location: customers are likely to prefer to use the dry cleaner closest to their home or workplace. Finally, there are no significant barriers to entry. This is a monopolistically competitive market

D) A farmer who produces soybeans

There are a large number of soybean farmers, and there is free entry and exit in farming. But, soybeans are not differentiated from each other they are a standardized product. No individual soybean farmer has market power. This industry is Placed under perfectly competitive industry.