MCQ On Market Structure

In a market structure called 'Monopoly', there will be only one firm operating in the market. This means that there is no competition from other firms, and the monopolistic firm has complete control over the market. It can set prices and output levels according to its own discretion, without any fear of competition. This lack of competition often leads to higher prices and lower consumer choice. Monopolies can arise due to barriers to entry, such as high start-up costs or exclusive access to resources or technology.

Monopoly and monopolistic competition do not mean the same thing. Monopoly refers to a market structure where there is a single seller dominating the market, while monopolistic competition refers to a market structure with many sellers offering differentiated products. In a monopoly, there are no close substitutes for the product, whereas in monopolistic competition, there are similar but differentiated products. Therefore, the correct answer is false as the two terms have different meanings in economics.

When a monopolist equates marginal cost (MC) to marginal revenue (MR), it means that the additional cost of producing one more unit is equal to the additional revenue generated from selling that unit. This is the point where the monopolist maximizes their profits because any further increase in output would result in higher costs than the revenue gained. By equating MC to MR, the monopolist ensures that they are producing the optimal quantity of goods to maximize their profits. Therefore, the correct answer is "Maximizing profit."

The correct answer is MC = MR and MC cuts MR from below. In order to maximize profit, a firm needs to produce at a level where marginal cost (MC) is equal to marginal revenue (MR). This ensures that the additional cost of producing one more unit is equal to the additional revenue generated from selling that unit. Additionally, MC must cut MR from below, meaning that the marginal cost curve should intersect the marginal revenue curve from below. This ensures that producing one more unit is adding more to revenue than it is adding to cost, resulting in increased profit.

The main difference between oligopoly and duopoly is the number of firms involved. Oligopoly refers to a market structure in which a few large firms dominate the industry, whereas duopoly specifically refers to a market structure with only two firms. In an oligopoly, there may be more than two firms competing, whereas in a duopoly, there are only two firms competing against each other. Therefore, the number of firms is the key distinguishing factor between these two market structures.

A monopoly is said to misallocate resources because without competition, the firm does not face any pressure to be efficient. In a competitive market, firms strive to be efficient in order to attract customers and maximize profits. However, a monopoly does not have to worry about losing customers to competitors, so there is less incentive for them to operate efficiently. As a result, resources may be allocated in a way that is not optimal, leading to inefficiencies in production and distribution.

Firms can compete with each other by lowering their prices, which means offering products or services at a lower cost than their competitors. This can attract customers who are price-sensitive and looking for the best deal. On the other hand, non-price competition involves differentiating products or services from competitors in terms of quality, design, features, or branding. This allows firms to stand out and attract customers based on factors other than price. Examples of non-price competition include offering unique product features, superior customer service, or a strong brand image.

E.H. Chamberlain is considered the originator of the theory of monopolistic competition. He introduced this concept in his book "Theory of Monopolistic Competition" published in 1933. Chamberlain argued that in certain markets, firms have some degree of market power due to product differentiation, leading to monopolistic competition. He emphasized the role of advertising and brand loyalty in this type of competition. Chamberlain's work has had a significant influence on the field of economics and has been widely studied and referenced by subsequent researchers.

Imperfect competition refers to market structures that deviate from the ideal conditions of perfect competition. Monopoly, monopolistic competition, and monopsony are all examples of imperfect competition. In a monopoly, there is a single seller in the market, giving them significant control over prices and limiting competition. Monopolistic competition occurs when there are multiple sellers offering differentiated products, leading to some degree of market power. Monopsony, on the other hand, refers to a market with a single buyer, which can also distort competition. Therefore, all three options, monopoly, monopolistic, and monopsony, belong to the category of imperfect competition.