Question

In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than its competitors'.

Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care about who sells them their socks. The technology for producing socks is widely known, and any reputable person who wanted to start a sock manufacturing business could obtain a loan from a bank to buy the necessary machinery.

In a large city, two taxi companies own all the licenses that the city will grant to operate taxis.

Consumers don't care which cab company they take—if they decide it's worth taking a cab, they flag down the nearest one. 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.

For each question: How many firms? One, Many or Few

For each question: Type of product? Unique, Anything, Standardized, or Differentiated

For each question: Market Value? Perfect competition, oligopoly, monopolistic competition or monopoly

Answer 1

1) In a major metropolitan area, one chain of coffee shops has gained a large market share because customers feel its coffee tastes better than its competitors'.______

• In this case there are many firms which produce coffee.

• It is a differentiated product because customers feel it taste better than that of its competitors'.

• This is a monopolistic competition because the producers sell products that are differentiated from each other. The products are similar, but they are not perfect substitutes.

2) Dozens of companies produce plain white socks. Consumers regard plain white socks as identical and don't care about who sells them their socks. The technology for producing socks is widely known, and any reputable person who wanted to start a sock manufacturing business could obtain a loan from a bank to buy the necessary machinery.______

• In this case there are many firms producing plain white socks

• It is a standardized product because the product of the firms are the same and consumers buy the socks regardless of the firm that produced it.

• A perfect competition happens here because all firms are competing with each other. In perfect competition, no firm can influence the price of the product.

3) In a large city, two taxi companies own all the licenses that the city will grant to operate taxis.

Consumers don't care which cab company they take—if they decide it's worth taking a cab, they flag down the nearest one.______

• In this case there are few firms ( only 2 firms)

• In this case, the type of products are anything because consumers don't care whicg cab they use.

• An oligopoly market exists here because it is a competition between just 2 firms.

4) 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._______

• In this case, only one firm is in the market.

• The type of product is a unique product because no other producer sells the product.

• This is a monopoly market because only one company sells a unique product in the market.