Question

In which market structure is there a large number of firms producing slightly differentiated products? O A. either perfect competition or monopolistic competition O B. monopoly O C. only perfect competition O D. only monopolistic competition O E. oligopoly

Answer 1

1. D) only monopolistic competition

Monopolistic competition refers to a market situation with large number of buyers and sellers selling closely related or differentiated products but not identical product. The products are close substitutes of each other. Product differentiation is the important feature of monopolistic competition. Each firm under monopolistic competition enjoys the monopoly over the brand of the commodity and thus the firm has the control over the price of the commodity. Example: Firms producing different brands of soaps like Dove, lux, lifebuoy, etc.

2. E) charging a hookup fee plus a monthly charge equal to marginal cost

Two part tariff is one form of pricing schedule in this pricing strategy monopolist charges an entry fee and usage fee. The amount of entry fee and usage fee depend on the number of users. For a single consumer, usage fee is equal to MC and entry fee is equal to consumer surplus. However, in the case of 2 consumer, usage fee > MC and entry fee is equal to consumer surplus of least eager buyer or with smaller demand function.

Answer 2

Monopolistic competition