Question

List the characteristics of perfect monopoly, oligopoly, and monopolistic competition.

Answer 1

Monopoly :

The various characteristics of a monopoly firm are :

• A monopoly is a market structure characterized by a single firm controlling the whole market.
• The single monopoly firm sells unique products to its customers that are not provided by any other firms.
• These markets are characterized by high barriers to entry and no other firm can enter into the market.
• The monopoly firm makes all the major decisions like the setting of prices and quantities as they have no outside interference from other firms.

Oligopoly :

The various characteristics of an oligopoly are :

• An oligopoly is a market structure characterized by small number of large firms dominating the market.
• These firms may either sell identical or differentiated products.
• The oligopoly firms, are characterized by higher interdependence between various firms in decision making.
• These firms may collude together to earn higher profits by agreeing on a higher price level for their goods and services.
• Due to little competition, this market has no barriers to entry and exit but in long run, when the firms collude, the barriers to entry and exit will exist.

Monopolistic competition :

The various characteristics of a monopolistically competitive market are :

• A monopolistically competitive market is a market structure characterized by large number of small firms.
• Each of these firms sell slightly similar or differentiated products that are not identical to other firms.
• Due to excess competition in this market between the firms, this market has no barriers to entry and exit.
• Each firm set their own prices and decide the output quantities based on the cost of production, competition and product's.