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MGE1108

ECONOMICS FOR
BUSINESS
SUBJECT

FAZLUZ RAMAN
LECTURER

MARISSA PLAZA
410505
STUDENT

Question 1
Compare the market structures of Perfect Competition, Monopoly, Monopolistic
Competition and Oligopoly under the following headings (about 250 words.)

A. Number of Firms in the Market.


B. Similarity of the product sold
C. Barriers to entry.

A. Number of Firms in the Market

(Tucker, Robinson and Layton 2012) found that, in a perfect competition, there are
many Firms in the market. We can say that consumers can have many substitutes if
the good or service they wish to buy becomes too expensive or its quality begins to
fall short. According to study, (Tucker et al., 2012) Monopoly has a single firm in the
industry. One firm is the sole supplier of goods and services in a particular place.
Under Monopolistic Competition, there are relatively large numbers of sellers (firms)
in which it makes the market highly competitive. (Tucker et al., 2012)summarizes in
their study about Monopolistic Competition that The many-sellers condition is met
when each firm is so small relative to the total market that each firms pricing
decisions have no effect on the market outcome. The firms can set prices of their
products slightly higher without having fear that it might lost its customers. (Tucker
et al., 2012) also studied that Oligopoly has only few sellers. Few numbers of firms
dominate the market, this means that a decision by a single large firm to alter the
amount of output it sells in the market will affect the overall market supply, thus the
market price.

A. Similarity of the Products Sold.

In a Perfect Competition, the product is being sold is homogeneous (Tucker et al.,


2012). There are no differences in what each firm selling. The products are exactly
alike in all respects to the product of other firms. In a Monopoly, the product is
unique, therefore no close substitute for it. According to a study (Tucker et al.,
2012), because products are unique, monopoly faces little or no competition at all.
In a Monopolistic Competition, A study(Tucker et al., 2012)provides that the product
sold is differentiated. Each individual seller has a product which is slightly different
from the product of other producers. A differentiated product also means that there
are close, but not perfect substitutes of the product. (Tucker et al., 2012) found that,
In an Oligopoly, the product produced is either identical or differentiated. Buyers in
an oligopolistic market may or may not be indifferent as to which sellers product
they buy. Also, where product is identical, there is no need for advertising or non-
price competition. If the product is differentiated advertising and non-price
competition takes place.
B. Barriers to Entry

Under the Perfect Competition, there are no barriers to entry, meaning there is
freedom. (Tucker et al., 2012) has conducted a research and summarized that
Perfect Competition requires that resources be completely mobile to freely enter
or exit a market. (Tucker et al., 2012) found that In a Monopoly, there are
extremely high barriers that make it difficult or impossible to for new firms to
enter an industry. These strong barriers in this case would include things such as
legal protection and government restrictions. Importance of this is that in the
long run, new firms will be kept out of the industry. Entry to this is blocked either
by natural or artificial barriers. In a Monopolistic Competition, A Study (Tucker et
al., 2012) provides that Firms in monopolistically competitive markets confronts
low barriers. These barriers are usually the result of legislative activity of some
kind. These markets are thus markets that remain very easy to enter. (Tucker et
al., 2012) concluded in his research that, similar with the monopoly, formidable
barriers to entry in Oligopoly protects the markets from new entrants. These
barriers includes economies of scale, product differentiation, minimum capital
requirements, requirement of permits or licenses such as construction permits,
building codes and other licenses necessary to establish.
Question #2

A. Explain Non-Price Competition means. (about 30 words)

(Tucker et al., 2012) has defined non-price competition as a situation in which a firm
competes using advertising, packaging, product development, quality and services
rather than lower prices. It is usually more profitable than selling for a lower price and avoids the
risk of a price war.

B. Give three examples of how firms engage in non-price competition

1. Firms may engage by changing the design of their products to make them more appealing without
significantly changing production cost or the quality level.

2. Firms such as oil companies may engage by establishing more service stations in different places
without significant changes in price in order to increase their sales and create brand loyalty.

3. Firms such as soft drinks producers may improve the products taste and also make better
Advertisement and promotion on televisions in order to attract more customers and increase its sales.
Question #3

Explain the term Mutual Dependence

Base on their studies conducted (Tucker et al., 2012), they define that Mutual Dependence is
condition in which an action by one firm may cause a reaction on the part of other firms. In which each
company will have to consider the consequences of a change in strategy on competitors within that
market. Oligopolies try to maximize profit. They work together to make it difficult for others to enter their
market.
Question #4

Which market structure do you think each of the following businesses belong to? Explain your choice.

A. Cole Supermarket in your city. (Oligopoly)

It is one along the Big Firms (Woolworths, Aldi) which dominates the market. They
are only few sellers in the city that sells products which are close substitutes of each
other.

B. A hairdresser salon. (Monopolistic Competition)

Hair dresser salon may provide same services just like the others but its service may also be
differentiated from the others. They differ in hair styles and sometimes services rendered which are not
offered in the others.

C. Metro Trains in Melbourne and Sydney Trains. (Monopoly)

Metro Train is the only firm that provides transportation railway services to the people in Melbourne.
Sydney Trails is the sole firm that provides transportation service to the people of Sydney.

D. National Australia Bank (Oligopoly)

It is one of the four Big Banks along with Commonwealth Bank (CBA), Westpac (WBC) and
Australia and New Zealand Banking Group (ANZ) that dominates the Australian
banking sector.

E. Academies Australasia Polytechnic (Oligopoly)

This school is one along with the Big Schools and Universities which dominates the
city. Though it provides similar services but it differs on the courses it offered, the
way the teacher teaches the students, location and the environment.
F. small store that sells souvenirs such as wallets, cups, tee shirts, key
chains in your citys Sunday market that has many stores. (Monopolistic
Competition)

Though it sells similar products, still, its products are differentiated and not identical
from the products of the other souvenir stores. They differ in styles and designs of
products being sold.

G. A car workshop in your city ( Perfect Competition)

Car workshops offers the exactly same services like cleaning and repairing cars just
like the others. Anyone can go to different car workshops but still receive the same
service.

H. Iphone and Samsung in the mobile phone industry. (Oligopoly)

Iphone and Samsung are the major players along with Nokia, Blackberry, HTC, Sony
Ericson, LG and Motorola in the smartphone industry. The number of sellers are
small, each of them holding a sizable percentage of the market share, with Apple
and Samsung being the dominant players. They have a joint control over the price
of the products.

Question #5

Required:

State which demand curve applies to the Monopolistic Competition firm and the other to the Oligopoly
Firm and explain why you think so. (Hint: consider their price elasticities of demand)
Diagram A is the demand curve of an Oligopoly. (Pagoso, Dinio, Villasis., 2014) states in their book that
an oligopoly has a kinked demand curve. A demand is still similar to the traditional demand curve in that
they are both downward sloping. Oligopolistic price are normally sticky downward, meaning firms in this
market normally do not lower their prices. As the firm decreases or increases the price, its
product does not become neither relatively cheaper nor dearer. Therefore, now its
demand curve would be less elastic, or steeper.

Diagram B is the demand curve of a monopolistic competition. (Pagoso., et al 2014) in his book states
that monopolistic competition is less than elastic. (Tucker.,et al 2012) also states in his book that its
demand curve is downward-sloping because customer perceive that products sold by a firm is different
from its competitors products. Firm in this market produce too little outputs at inflated price and waste
societys resources in process.

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