Question

Classify the following markets as perfectly competitive, monopolistic, or monopolistically competitive, and explain your answers.

a. wooden pencils
b. bottled water
c. copper
d. local telephone service
e. peanut butter
f. lipstick
g. cola
h. beer

Answer 1

The markets can be classified as follows: wooden pencils (perfectly competitive), bottled water (monopolistically competitive), copper (unknown), local telephone service (monopoly), peanut butter (monopolistically competitive), lipstick (monopolistically competitive), cola (oligopoly), and beer (oligopoly).

Step-by-step explanation:

To classify the markets, we need to consider their characteristics.

1. Wooden pencils: Perfectly competitive, as there are many manufacturers producing identical products.
2. Bottled water: Monopolistically competitive, as there are many different brands with slightly differentiated products.
3. Copper: Not enough information provided to determine market structure.
4. Local telephone service: Monopoly, as there is usually only one provider in a specific area.
5. Peanut butter: Monopolistically competitive, as there are several brands with slightly different flavors and ingredients.
6. Lipstick: Monopolistically competitive, as there are many different brands offering a variety of colors and formulations.
7. Cola: Oligopoly, as a small number of firms dominate the market, such as Coca-Cola and Pepsi.
8. Beer: Oligopoly, as a small number of large breweries, control a significant portion of the market.