Question

The processed food industry in Pakistan has made significant progress in recent years. The industry is now focusing not only on traditional processed food items (e.g., cereal, biscuits, jam, pickles, juices, spices, etc.) but also on value added products, such as frozen ready-to-cook/fully cooked food, healthier snacks, dressing and sauces, processed meat and poultry. A large number of firms have come up in the market to cater the rapid changing needs of the customers. Despite of huge competition, this industry has huge potential to generate profits due to high demand of the customers.

Requirement:

Being a student of economics, analyze the topics of market structures carefully and identify the market structure category in which processed food industry fall. Justify your answer by applying the characteristics of that market structure on the given industry.

Answer 1

Answer:

This market structure is the Monopolistic Competition. It is called Monopolistic Competition because there are many small firms and all of them are not selling exactly the same products but more or less slightly different products. As there are many firms, they have a lot of power and they can charge higher prices and as there are many customers, they don't suffer losses either.