Question

For each of the following scenarios, identify the number of firms present, the type of product, and the appropriate market model.

a. A large city has lots of small shops where people can buy sweaters. Each store's sweaters reflect the style of that particular store. Additionally, some stores use higher-quality yarn than others, which is reflected in their price.
b. There are hundreds of high school students in need of algebra tutoring services. Dozens of companies offer tutoring services; parents view the quality of the tutoring at the different companies to be largely the same.
c. Only three airlines fly from San Francisco to Medford, Oregon. No new airline will enter this market, because there are not enough customers to share among four or more airlines without each one experiencing substantially higher average costs. Consumers view all airlines as providing basically the same service and will shop around for the lowest price.
d. The government has granted a patent to a drug company for an experimental AIDS drug. That company is the only firm permitted to sell the drug.

Answer 1

a. large number of firms, they have differentiated products, and this is a monopolistic market model

b. large number of firms, they have standardized products, and this is a perfectly competitive market model

c. few number of firms, they have standardized products, and this is an oligopolistic market model

d. one number of firms, they have a single products, and this is a monopoly

Step-by-step explanation:

a. This first question is a monopolistic competition. this is because it has the following characteristics:

It has large number of firms, the products here are differentiated, there is no entry cost and also no exit cost in the long run. Entereing the market is challenging

b. this is a perfect competition, the characteristics are large number of firms, the products are identical and the entry and exit in the market is easy

c. this market is an oligopoly. it has a few firms, the products can be identical or they can be differntiated, and it has barriers to entry from what we have seen here.

d. this market is a monopoly. the firm is a single one, and due to the patent there are no new entries for any other firm.