Question

Distinguish between the following market structures by examining three (3) characteristics each of firms in these market structures:

➢ Perfect competition

➢ Monopolistic competition

➢ Monopoly

Answer 1

The following are the three characteristics in each of the following firms that distinguish them:

Characteristics of perfect competition market structure.

1. The transaction costs are absent in this market structure.
2. There are many buyers and sellers in this market structure.
3. There are no barriers for entry or exit of firms in this market structure.

Characteristics of monopolistic competition market structure.

1. There is imperfect information in this market structure.
2. There are normal profits in the long run.
3. There is maximization of profits in this market structure.

Characteristics of monopoly market structure.

1. There are high barriers to entry of firms in this market structure.
2. There is price discrimination in this market structure.
3. There is only a single seller in this market structure.