Question

Determine whether the statements below indicate the market is perfectly competitive or monopolistically competitive.

1. Firm A is one of many firms in the industry producing the exact same product as their competitors.

• Perfectly Competitive

• Monopolistically Competitive

2. Firm B charges the market price for their product after unsuccessfully trying to increase it.

• Monopolistically Competitive

• Perfectly Competitive

3. Firm C offers a product that is faster than their competitors allowing them to charge a higher price.

• Perfectly Competitive

• Monopolistically Competitive

Answer 1

Answer :

Question 1 : Perfectly Competitive

Explanation : In perfect competition there are a large number of firms producing exactly the same good (homogeneous in nature). Thus having no influence over the market individually.

Question 2 : Perfectly Competitive

Explanation : Since in perfect competition there are a large number of firms producing exactly the same good, so no one individually has any influence over the market price and quantity. Only here a firm B trying to increase the price will face a loss and won't be able to sell any output since the price offered by other firms is lower for the exact same product.

Question 3 : Monopolistically Competitive

Explanation : Here firm C offers a product that is slightly different from that of its competitors. The product offered by firm C is faster than that offered by its competitors and this gives them some monopoly power of charging a higher price attributed to the fact that their product is of a better quality. Thus this shows a monopolistically competitive market.