Question

(a) Which market structure, Perfect Competition, Monopoly, or Monopolistic competition, will result in the greatest degree of choice between alternate products for consumers? Please give an explanation.

(b) In which market structure are firms most likely to advertise? Please explain.

Answer 1

a) maximum choice would be available for monopolistic competition. There are large number of firms but still there is competition and each firm has an effect on price. In monopoly there is only one seller so no choice and in perfect competition all fitms sell homogeneous goods. In perfect competition consumer is not having choice between the product since everyone producer sells entirely same product at a price given by the industry. Monopolistic competition is somewhat in the middle of the monopoly and perfect competition so they have different goods and consumers have choices. For example the toothpaste companies, all have slightly different component which makes their product different. This is the reason we have many choices of toothpastes to buy from. But railways is a monopoly. If I don't wanna use govt rails there is no other option left to me because no close substitute is present and no choice to the consumer.

b) monopolistic firm is more likely to advertise because there is competition. Monopolist do not require advertisement because he is the single seller and perfect price firms sell homogeneous products so no need of advertisement. We can take a similar example of toothpaste companies. There are so many advertisement and hoarding of some famous personalities advertising for the toothpaste. This happens because there are few other firms which would take away the customers if not told to the customer that their product is best. In perfect competition no one is bothered about advertisement because one firm advertising would be doing for the entire industry and that is not feasible so no firm does. Monopoly do not need to advertise as being the sole producer no consumer will be getting an option even after advertising. So only monopolistic firms advertise.