Essay (5 points each)

1. Do you think it might be efficient for an industry to be monopolistically competitive rather than
perfectly competitive? Defend your answer.
Answer:
Yes, I do think that it might be efficient for an industry to be monopolistically competitive
rather than perfectly competitive because in monopolistic competition there are a large number of
independently-acting firms and buyers. In monopolistic competition, sellers sell differentiated
varieties of products so it would be easier for the seller to market his products and eventually acquire
sales. In a monopolistically competitive market, there are no barriers to entry preventing new firms
from entering the market or obstacles in the way of existing firms leaving the market also it provides
profit to the seller. Unlike to the perfect competitive that the products to be sell is almost free to give
so the seller will suffer if their business will end to bankruptcy. It should be fair so monopolistically
is might be efficient than perfectly competitive.

2. Monopolistic competition is defined by product differentiation. Explain.

Answer:

True, because the products offered by competing firms under a monopolistically competitive market
are differentiated from each other in one or more respects. This is the key feature of monopolistic competition.
Product differentiation is the process of creating real or apparent differences between goods and services sold
in the market. A differentiated product has close, but not perfect, substitutes. Although each firm's products
are highly similar, the consumer views them as somewhat different or distinct. Some people will pay more for
one variety of the product, so when its price rises, the quantity demanded decreases.
Cite the characteristics of each Market Structure by completing the table:

MARKET NUMBER OF BARRIERS TO TYPE OF PRICING

EXAMPLE
STRUCTURE SELLERS ENTRY AND EXIT PRODUCT/S POWER
PERFECTLY A LARGE There are no barriers Homogeneous Both sellers There are
COMPETITIVE NUMBER OF to entry of new sellers or identical and buyers of thousands of
MARKET SELLERS or impediments to the product - In a which are vegetable
exit of existing perfectly being farmers
sellers. competitive sufficiently throughout the
market, the small to be Philippines. If
products unable to any single
offered by the influence the farmer raises or
competing price of lowers the price
firms are product of their
identical not transacted in vegetable, the
only in physical the market. going market
attributes but price for
are also vegetables in
regarded as the market will
identical by be unaffected.
buyers who
have not to
preference
between the
products of
various
producers. In
other words, all
firms produce
a standardized
or homogenous
product. Thus,
for perfect
competition to
occur, all the
industry firms
must sell an
identical or
standardized
product.
Single seller or Impossible entry Unique product The Example:
MONOPOLY producer - A unique monopolist DLPC or
 product means makes its Davao Light
that there are output and Power
no close decision on Company, Inc.
substitutes for profit is a local
the maximization electric power
monopolist’s MR = MC (at provider in
product. As point e), but Davao Region,
such, the since the DCWD, or
monopolist monopolist is Davao City
faces little or the price Water District,
no competition. maker, it the distributor
In reality, charges a of water to the
however, there higher price residents of
are few, if any, than MR: P > Davao City.
products that MR. The Armed
have no close Forces of the
substitutes. Philippines
provide
military service
to the entire
country
MONOPOLISTIC A large number Easy entry and exit - Differentiated Monopolistic Example: Don
of In a monopolistically product - The competitors Pedro owns a
COMPETITION
independently- competitive market, products do have some seafood
acting firms and there are no barriers offered by influence over restaurant in
buyers to entry preventing competing price because the Manila Bay
new firms from firms under a their products area. He
entering the market or monopolisticall are assumes that he
obstacles in the way y competitive differentiated. can set prices
of existing firms market are But still, it is slightly higher
leaving the market. differentiated a “small” or improve
Thus, unlike a from each other influence. services
monopoly, firms in a in one or more independently
monopolistically respects. This without fear
competitive market is the key that his
face low barriers to feature of competitors
entry. However, entry monopolistic will react by
into a competition. also changing
monopolistically Product their prices or
competitive market is differentiation giving better
not quite as easy as is the process service. In such
entry into a perfectly of creating real a case, if any
competitive market. or apparent single seafood
Because differences restaurant
monopolistically between goods raises its prices,
competitive firms sell and services the going
differentiated sold in the market price
products, it is market. A for seafood
somewhat difficult for differentiated dinners
new firms to become product has increases by a
established. close, but not negligible
 perfect, amount.
substitutes.
Although each
firm's products
are highly
similar, the
consumer
views them as
somewhat
different or
distinct. Some
people will pay
more for one
variety of the
product, so
when its price
rises, the
quantity
demanded
decreases
Few sellers High barriers to entry Homogeneous Oligopolists The unleaded
OLIGOPOLY and exit: the most or normally have gasoline of
important barriers are differentiated pricing power Pilipinas Shell
government licenses, products - In an but do not is identical to
economies of scale, oligopolistic have the full the unleaded
patents, access to market, the freedom of gasoline of
expensive and products using it, Petron or
complex technology, offered by unlike Chevron.
and strategic actions suppliers may monopolists. However, cars
by incumbent firms be identical or The pricing produced by
designed to more power of the major
discourage or destroy commonly oligopolists is automakers,
nascent firms. differentiated always like Toyota,
from each other limited to the Honda, and
in one or more endless Ford, are
respects. These fascination differentiated
differences with the products. If
may be possible such is the
physical in countermoves case, buyers in
nature, made by an oligopoly
involving competing market may or
functional firms that may not be
features; they drive each indifferent
may otherwise oligopolist's about which
be purely pricing and seller’s product
“imaginary” in output they buy. In
the sense that decisions. other words,
artificial the unleaded
differences are gasoline that
created through you buy at a
advertising and Shell station is
sales no different
promotion. from that of a
These Petron or
differences Chevron
may be station, so you
physical in are indifferent
nature, whether you
involving buy your gas
functional from the former
features; they or the latter.
may otherwise
be purely
“imaginary” in
the sense that
artificial
differences are
created through
advertising and
sales
promotion.