Question

What tow characteristics does a market structure need to have for firms in that industry to engage in technological advance? What market structure best meets these criteria?

Answer 1

Technology refers to the application of science in the production process which will lead to lowering of cost and increase in output and thus increase in profit.The characteristics of market structure that firms need to have for technological advance are are profits and few competitors . Profits motivate firms and in the absence of profits ,firms exit the industry.In order to make profit , technological advancement is required which will reduce the cost of production.Again when there are few competitors,the firms will make effort to compete with each other by obtaining economies of scale .Economies of scale can be obtained by technological advancement . This reduces cost of production and lowers price which in turn attracts customers.

Oligopoly market structure best meets this because there are few competitors as there are few sellers in such market. Such market structure indulge in maximising profit.