Question

Economic profits result whenever only a few large competitors are active in a given market.Discuss this statement

Answer 1

Market structures that cannot be counted completely

competitive and which at the same time are not controlled

seller monopolist, refer to cases of imperfect competition. It occurs when two or more firms, each of which has the ability to influence the price, compete in the market.

There are two known forms of imperfect competition:

monopolistic competition and oligopoly. Monopolistic competition implies that a significant number of firms, each of which satisfies a relatively small share of the market

demand, compete in the market for a differentiated product with free entry and exit. Oligopoly, by contrast, is characterized by a relatively small number of firms that dominate a market where entry and exit can be difficult. Each of the participants in the oligopoly market occupies a significant position since it accounts for a significant number of sales. This enables the firm to influence the market and its other participants. But, on the other hand, since the bulk of sales falls on other firms, then any of the oligopolists is under significant interaction of the behavior of the rest. Therefore, the diktat of prices under an oligopoly is limited.

The main point is the presence of barriers to entering this industry. They can be:

- the size of the firm (i.e. the firm must be large enough, produce a significant amount of goods, have

the possibility of reducing costs). This requires

large initial capitalization.

- the requirement for a patent;

- control over strategic raw materials;

- huge advertising costs.