Question

Check each of the following that may exist in oligopolies and monopolistic competition when compared to pure competition.

A.increased efficiency

B. higher costs

C. less efficiency

D.more output than pure competition

E. lower output than pure competition

F.lower costs to consumers

Answer 1

Ans) Perfectly competitive market is where there are many sellers selling homogeneous products. Sellers are price takers.

Monopolistic competition is where there are many sellers selling homogeneous but differentiated products.

Oligopoly is when there are few large firms which dominate the market.

Both oligopoly and monopolistic competition produce less output than pure competition and charge higher prices.

Further, both oligopoly and monopolistic competition are inefficient while pure competition is efficient. It is because pure competition charges price equal to marginal cost and produces socially optimal quantity. While both oligopoly and monopolistic competition produce less quantity and charge a price higher than marginal cost leading to inefficiency.