there are many firms selling toothpaste but their quality is different from each other the toothpaste market is
a) oligopoly
b) monopoly
c) monopolistic competition
d) all of these
Answers
Answer:
Perfect competition is on one end of the market structure spectrum, with numerous firms. The word, “numerous” has special meaning in this context. In a perfectly competitive industry, each firm is so small relative to the market that it cannot affect the price of the good. Each perfectly competitive firm is a price taker. Therefore, numerous firms means that each firm is so small that it is a price taker.
Monopoly is the other extreme of the market structure spectrum, with a single firm. Monopolies have monopoly power, or the ability to change the price of the good. Monopoly power is also called market power, and is measured by the Lerner Index.
This chapter defines and describes two intermediary market structures: monopolistic competition and oligopoly.
Monopolistic Competition = A market structure characterized by a differentiated product and freedom of entry and exit.
Monopolistically Competitive firms have one characteristic that is like a monopoly (a differentiated product provides market power), and one characteristic that is like a competitive firm (freedom of entry and exit). This form of market structure is common in market-based economies, and a trip to the grocery store reveals large numbers of differentiated products: toothpaste, laundry soap, breakfast cereal, and so on.