Question

Pick a firm from which you purchase goods or services or by which you are employed. Identify the firm’s relevant market structure. Strongly support your answer with theory from class. Be as detailed as possible and expand upon each concept. For example, if the firm is monopolistically competitive, how exactly do they differentiate their product? Or if its in an oligopoly, how does the firm react to its competitors’ actions? These are two limited examples. While you may not address these specific questions, they demonstrate how to contribute to a well-developed post.

Answer 1

we may take the example of car industry in the economy.there are only limited supplier with the production of cars therefore this industry is considered to be oligopoly market structure.there is a slight differentiation in the product.it means the product usage may be same but there might be a little change due to brand power and the sale can be maximize through the advertisement and customer service.

• in the oligopolistic market structure the firm is very conscious about the rival's strategy.
• firm's decision is generally and mostly based on the decision taken by it's rival.There are several methods under the concept of oligopoly,kinked demand curve is one of the important method under oligopoly.therefore this concept  can be understood with the following example of KINKED demand curve.

as it can be seen that AE point the demand curve is flatter this means that it is highly elastic area and a little increase in price may leads to lose a large number of consumer for a firm

the EB point is steeper which represent the inelasticity.

example-

suppose there are four car producers A,B,C,D in the economy.all have there acquired market share and predetermined price of OP and supplies the total quantity OQ.

• now suppose if A rises its price then what steps would be taken by other producers?
• the other producers won't change there price which may lead to a customer loss to the firm A and thus a little increase in price would leads to lost the huge market share and customers and it would benefit the other producer B,C,D.this is price elastic because a small change in price has leads to a huge change in demand in the economy.

• Now suppose if A decrease its price from the predetermined price,that what would be the strategy of other producers.
• when the price is reduced by A there is a customer loss threat for the other producers and all the remaining firms would now have to lower their price to prevent and retain their customer and market share in the economy.this means lowering the price has not benefited A because change in price is greater than change in quantity demanded and it represents price inelasticity.

this is also known as price stickiness or price rigidity because it is not favorable for the firms to shift from the determined price.