Question

As shown in the I Love Lucy video clip, A Little Bit of Cuba and a Big Hunk of America are both in the restaurant market. Imagine the kind of market structure that restaurants in general operate in. a. Using the table provided in the AVP describing the characteristics of the different market structures, classify the market structure that restaurants in general operate in. Explain your reasoning. b. Choose a different firm from a different market structure and explain the characteristics of that market. It is best to go with a firm you frequent or are familiar with so you can speak from your own personal experiences. Note: Make sure that in parts a. and b. you described how competition affects the buyers and sellers involved in these market structures. PLEASE TYPE ANSWER

Answer 1

a)Restaurants operate in monopolistic competition.There are many firms competing with the kind of food they produce, each trying to compete with another producing slightly different product in different locations.In the long run the market is competitive and so differentiated products are produced.Restaurants are not price takers and have inelastic demand.Decision of one restaurant do not directly affect the decision of the competitors.Firms can easily enter and exit in the long run.Monopolistic firm charges prices that exceed production cost.Buyers and sellers have imperfect information and at the profit maximising level, there is consumers loss and producers surplus.

b)Agricultural market is an example of a perfectly competitive market.Producers face many competitors selling similar goods and they are price takers.Products are identical .If the firm wants to charge price slightly more than the market price,it will not be able to sell its product.All Producers will sell the product at one price and consumers will be protected as more price will not be charged.There are many sellers and there is easy entry and exit of firms.