Question

5. When Boomer Cement was forced to “i.t.n.e.”, what happened to its cost curve? 6. If an entire industry is polluting “too much”, and it is forced to “i.t.n.e.”, what happens to the Supply, the Price, and the Quantity produced in that market, in theory? 7. What are the four “Market Structures”? Please describe each Market Structure and give an example of a firm that belongs in each of the four Market Structures, preferably a firm that was not discussed previously. 8. What is a “natural monopoly”? Please give an example. 9. Why are natural monopolies often regulated by some sort of Government Regulatory Agency? 10. In YOUR OPINION, SHOULD THE STATE OF CALIFORNIA HAVE TAKEN OVER PG&E? Why or why not? 3232

Answer 1

(7)- Market structure refers to the number and size distribution of buyers and sellers in the market for goods and services.The four basic types of market structure are:

1-PERFECT COMPETITION

Perfect competition describes a market structure where the buyers and sellers have no rivalry since they are in large number and a single firm does not have any significant market power.There is complete absence of direct competition among economic group.In this market the seller is a price taker.

Characterstics of perfect competition are:

• existence of homogenous products.
• free entry and free exit of firms.
• perfect knowledge of market conditions.
• no preference to consumers.

Example of a market with perfect competition is the stock market , foreign exchange market etc.

2-MONOPOLISTIC COMPETITION

Monopolistic competition refers to markets in which there are large numbers of firms competing supplying products which consumers believe are close but not complete substitutes.Monopolistic competiton is analogous to perfect competition except for the elements of product differentiation.

Characterstics of monopolistic competition are:

• existence of large number of firms.
• no close substitutes
• freedom of entry and exit.
• all firms maximise profit.
• consumer may choose one product over the other.

Example of market with monopolistic competition is the market of different brands of clothes.

3-OLIGOPOLY

Oligopoly is a market structure in which a small number of firms produce most of the industry's output.Under oligopoly , price output decisions of firms are interdependent in the sense that if one firms changesv its price , the other firms may react.

Characteristics of oligopoly are:

• few sellers.
• homogenous or differentiated products.
• barriers to entry and exit.
• mutual interdependence.
• all firms maximise profit.

Example of oligopoly market is oil and gas industries

4-MONOPOLY

A monopoly is the market structure where a single firm controls the entire market.The firm has the highest level of market power, as there are no alternatives.There is absence of competition. They are price maker.

Characteristics of monopoly are:

• price maker
• no competition
• high barriers to entry and exit of firms.
• one firm dominate the whole market

Example of monopoly is railways.

(8)- Natural Monopoly occurs when the number of firms in an industry is one.It will have very high fixed costs that it would be impractical to have more than one firm producing the good. Example of natural monopoly is railway infrastructure.

(9)-Natural monopoly are regulated by government regulatory agency because of the following reasons:

• to prevent excess prices
• to maintain the quality of service
• monopsony power
• promote competition