Atienza, Kerby G. Professor: Mrs. Aurora Susan G.

Reyes
BSBA HR-1 G2
Basic Microeconomics
Unit 8: Market Structure

Activity 21: Table of Questions regarding to Market Structures.

1. Complete the table. Describe each type of market by identifying their characteristics.

Type of Market
Market
Characteristics
Perfect Monopoly Monopolistic Oligopoly
Competition Competition

Type of Product Homogenous Highly Differentiated Differentiated or

Product. Standardized. products or similar identical products.
but not identical.
Price Competition Increase: must Occasional with Intense. Occasional but
meet price of other producers of operative behavior
firms. substitute goods often present.
and services, price
of natural
monopolies subject
to regulation.

Barriers to Entry No. High. Low. High

Degree of Control Price Taker. Price Maker. Limited control. Has control over
over Price price.
No. of Sellers Large number of Only one seller. Numerous buyers Small number of
sellers. and sellers. firms.

2. Identify the following market condition whether it falls into perfect competition (PC), Monopoly (M),
Oligopoly (O), or Monopolistic competition (MC). Write only the symbol in the space provided.

M A. There is no available substitute goods or services to their products so that it is considered unique.

PC B. It consists of a very large number of buyers and sellers offering a homogenous product.

O C. A small number of sellers is present, each aware of the action of the others.

MC D. There is limited control of price because of product differences.

3. What are the different classifications of monopoly? Cite an example of a firm under each classification.

Monopolies are classified according to circumstances they arise from, that is, cost structure of the
industry, possibly the result of law, or by other means.

Natural Monopoly- It is a market situation where a single firm can supply the entire market due to the
fundamental cost structure of the industry. It arises whenever capital cost is large enough as compared to
variable cost, and they have cost advantage over competitors. This classification is common to the providers of
gas, steels and the like.

Legal Monopoly- This is sometimes called as “de jure monopoly”, a form of monopoly which the
government grants to a private individual or firm over the product or service. Most of the utilities granted with
an exclusive franchise by the government such as water and electricity services enjoy legal monopolies.

Coercive Monopoly- It is a form of monopoly whose existence as the sole producer and distributor of
goods and services is by means of coercion (legal or illegal), so that most of the time, it violates the principle of
free market just to avoid competition.

4. Maynilad and MERALCO are monopolists in delivering water and electricity services because

B. Both are natural monopoly.

Explanation: Maynilad and MERALCO are both utility company and therefore they are also both
natural monopolies. Both companies are considered as natural monopoly as it was stated that a natural
monopoly occurs when the most efficient number of firms in the industry is one and typically have very high
fixed costs meaning that is it is impractical to have more than one firm producing the good.

5. What is monopsony and oligopsony? How do they relate to monopoly and oligopoly?

A monopsony is a market situation where there is only one buyer of goods and services in the market.
It is sometimes considered analogous to monopoly in which there is only one seller of goods and services in
the market. Since there is only one buyer, this market has the control of supply and it can reduce the number
of input demand in order to decrease the price of that particular input. It also gives the firm the ability to
control its unit cost for an input which is similar to the way the monopoly controls its price. While on the other
hand, Oligopsony is a market situation where there is a small number of buyers. This is usually with a small
number of firms competing to obtain the factors of production. Under this market situation, firms are buyers
and not seller. This is sometimes analogous to oligopoly where there are few sellers.

How do they relate to monopoly and oligopoly?

Both a monopoly and monopsony refer to a single entity influencing and distorting a free market.
While on the other hand, Oligopoly is a market structure in which there are only a few important sellers and
oligopsony is one in which there are only a few important buyers.