Question

Friedman argues that there is no clear-cut determination as to whether a business is monopolistic or competitive. What does he mean by this? Why does he make this argument? Explain. Do you tend to agree or disagree with him? Support.

Answer 1

Friedman argues that businesses may not prefer pure competition, as they benefit from reduced competition, allowing them to maximize profits. The line between monopolistic and competitive business environments is blurred because firms seek monopoly-like advantages while operating in competitive markets with product differentiation.

Step-by-step explanation:

Friedman's argument suggests that the dichotomy between a business being monopolistic and competitive is not always clear-cut. He bases this reasoning on the nature of market structures and the strategic behavior of firms that often seek to minimize competition and maximize profits. By comparing the desire for success in business to the pursuit of an Olympic gold medal, it is implied that businesses would prefer to operate without competitors, aiming for monopoly-like conditions where they can set prices and dominate the market without severe contestation.

The reason for this assertion is likely rooted in the understanding that firms in monopolistic competition differentiate their products and possess some market power. However, due to product differentiation and brand loyalty, companies may operate with excess capacity and charge prices that exceed marginal costs, leading to inefficiencies. In reality, many markets display characteristics of both competition and monopoly, as businesses strive to carve out unique niches while also facing some level of competition from other firms with similar products.