MARKET STRUCTURES WORKSHEET

1) List the four different types of market structures.

a) perfect competition
b) monopolistic competition
c) oligopoly
d) monopoly

2) Economies of Scale is the concept that larger companies can produce products at lower costs per unit
than small companies. Explain why this is used to justify natural monopolies.
Economies of scale are cost advantages that large firms obtain due to their size. they occur
because the cost per unit of output decreases with increasing scale, us fixed costs are spread
over more units of output.

3) Give two characteristics of a perfectly competitive market.

There are many buyers and sellers in the market.
Each company makes a similar product
4) Give two characteristics of a monopolistic market.
Profit maximizer.
High barriers to entry.
5) What does antitrust law prohibit?
Prohibit business practices that unreasonably deprive consumers of the benefits of
competition.

6) Electric providers like Edison are an example of what specific type of monopoly?
Natural monopoly

7) Microsoft Windows at one time would have been considered this type of monopoly?
Natural monopoly

8) The United States Postal Service is this type of monopoly?

Legal monopoly

9) Cartel is when a group of firms work together and essentially create a monopoly in order
to increase prices and their profits. This is a concern particularly in oligopoly market structures.
10) What type of demand (elastic or inelastic) do you think you would find in a perfectly competitive market (for
each firm, not each product)? Why do you think this is true? All goods are in a perfectly competitive
market are considered perfect subsitutes, and the demand curve is perfectly elastic for each of the
small, individual firms that participate in the market. these firms are price takers – if one firm tries to
raise its price, there would be no demand for that firm’s product.

11) What type of demand (elastic or inelastic) would you expect to find with a monopoly? Explain.
The monopolist will want to be on the elastic portion of the demand curve, to the left of the
midpoint, where marginal revenues are positive

12) In what TWO markets would you be most likely to find product differentiation?
Monopolistic and oligopoly competitive markets
 13) Why would you not find product differentiation in the other two markets not listed in the previous question?
Monopoly is one seller with one unique product and perfect competition is many sellers with
one product.
14) Monopolies can often be inefficient. What is the reason this is usually true?
Monopolies can become inefficient and less innovative over time because they do not have to
compete with other producers in a marketplace. In the case of monopolies, abuse of power can lead
to market failure. A monopoly is an imperfect market that restricts output in an attempt to maximize
profit.

15) Are the following monopolistic competition or oligopoly? (Explain your answer):

a. Refrigerators – oligopoly because of several sellers.

b. Video game systems-oligopoly because few sellers dominate industry.

c. Gourmet ice cream- monopolistic competition because gourmet ice cream are similar.

d. Sunscreen- monopolistic competition because the firms offer very similar products.

e. cable sports channel- oligopoly because there are only a few sports channels.

Comparison of Market Structures

Perfect Monopolistic Oligopoly Monopoly
Competition Competition
Number of firms Many Many Few One

Variety of goods Homogeneous Differentiated Differentiated or Highly standardized.

product. products or similar identical products.
but not identical.
Control over prices Price taker Limited control Has control over Price dictator
price

Barriers to entry No low High High

Examples Foreign exchange Tv programs Steel industry Microsoft windows

 MARKET STRUCTURES WORKSHEET
Directions: Read the descriptions of the businesses provided. Analyze each description, identify the market structure
that best characterizes the business, and explain your reasoning.

1) Healthy and Hearty Soups: Healthy and Hearty Soups produces a variety of soups. There is considerable
competition in the soup market. However, Healthy and Hearty Soups has spent several million dollars on an
advertising campaign to convince consumers that their soups are healthier than all other soups. Because of this
advertising, Healthy and Hearty Soups charges a higher price than other soups on the market.

Type of Market Structure: monopolistic competition

Reason - because convinces others that product is better. 

2) Bill's Salmon Supplier: Bill's Salmon Supplier sells fresh salmon to local seafood restaurants. Every
morning Bill sails out to sea to catch salmon, and each afternoon he returns to sell his catch to local restaurants.
There are hundreds of other fishers catching and selling salmon. Because the salmon Bill catches is just like the
salmon caught by the other fishers, he can't raise his price.

Type of Market Structure: perfect competition

Reason - because products are all the same.

3) County Cable: County Cable supplies cable access to all local residents. It was a very expensive business to
start. The entrepreneurs who started County Cable had to provide underground wire for the entire community.
Other companies tried to compete, but the start-up costs were simply too high.

Type of Market Structure: monopoly

Reason – because startup costs were to high for competition.

4) Perfect Picture Cameras: Perfect Picture Cameras is a national camera company. It competes with a couple of
other national camera companies. In order to gain an upper hand in the market, Perfect Picture Cameras has
differentiated its camera by including an automatic focus and flash. Perfect Picture Cameras has the ability to raise
its prices because of its unique features. However, federal regulators are always watching the company to ensure
that no collusion occurs with other camera companies.

Type of Market Structure: oligopoly

Reason - because only a few supplies and collusions suspected.

 For questions 5 through 9, in the space provided write O if the statement describes an oligopoly or M if the sentence
describes a monopoly.

O 5. This is the most common type of noncompetitive market found in the United States.

O 6. Cartels sometimes occur in this type of noncompetitive market.

M 7. A lack of close substitute goods reinforces type of noncompetitive market.

O 8. This is a market this structure in which a few large sellers control most of the production of a product.

M 9. This is a market structure in which one seller controls the total production of a product.

10. Suppose that there are five different lemonade stands in the same neighborhood. Explain how the
lemonade stands meet most of the conditions of perfect competition.

Eventually prices will equalize at all five lemonade stands. Perfect competition is accomplished when, in an appropriate
business, all firms have identical price arrangements and there is an adequately substantial amount of these same firms so that
the production arrangement of any one firm has no obvious influence on the cost at which it commodity is marketed.

11. If airlines (oligopoly) do not change their prices, how else might they try to compete with each other?

Then they would try to compete by providing more and better services to the customers.
When an airline competes with providing better services, it attracts customers to choose them because customers
could feel more comfortable on their flight.

12. Why do you think a monopolist is called a price maker?

A monopolist is a price maker because the company has no competition and controls the price in
the market by controlling supply.

13. What are some examples of barriers to entry?

Brand loyalty
Patent
Vertical integration

14. What are the main characteristics of oligopoly?

A Few Firms with Large Market Share

Each Firm Has Little Market Power In Its Own Right

15. Why can oligopolies be dangerous to consumers?

 The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and
increase prices, all of which harm consumers.