In which of these continuums of degrees of competition (highest to lowest) is oligopoly properly placed?
a. pure competition, oligopoly, pure monopoly, monopolistic competition
b. oligopoly, pure competition, monopolistic competition, pure monopoly
c. monopolistic competition, pure competition, pure monopoly, oligopoly
d. pure competition, monopolistic competition, oligopoly, pure monopoly
The correct answer and explanation is :
The correct answer is d. pure competition, monopolistic competition, oligopoly, pure monopoly.
Explanation:
The continuum of degrees of competition describes different market structures, each with varying levels of competition and market power. In this continuum, the market structures are placed in the order of pure competition (where there is the highest level of competition) to pure monopoly (where there is no competition at all, and one firm dominates the entire market).
1. Pure Competition:
- This represents the highest degree of competition in the continuum. In a perfectly competitive market, there are many firms selling identical products. There is free entry and exit, no barriers to competition, and no single firm has any pricing power. Firms are price takers, meaning they must accept the market price determined by supply and demand.
2. Monopolistic Competition:
- This is a market structure where many firms sell similar but differentiated products. While firms have some degree of market power due to product differentiation, the market remains competitive because there are still many players. Entry and exit are relatively easy, and firms compete on factors such as product quality, branding, and advertising. However, the level of competition is lower than in pure competition because of the differentiation.
3. Oligopoly:
- Oligopoly refers to a market structure dominated by a small number of large firms. These firms have significant market power and can influence prices, but they also compete with each other. There are barriers to entry that prevent new firms from entering the market easily. The firms in an oligopoly are interdependent, meaning their decisions (such as pricing or production) depend on the actions of the other firms in the market. Because of this, oligopolistic competition is less than monopolistic competition but still involves rivalry among a few firms.
4. Pure Monopoly:
- At the extreme end of the competition continuum is pure monopoly, where a single firm controls the entire market and is the sole producer of a unique product with no close substitutes. In a monopoly, the firm has significant pricing power because there is no competition, and barriers to entry are extremely high. Consumers have no alternative options, and the firm dictates the prices and output levels.
In summary, pure competition represents the highest degree of competition, followed by monopolistic competition, then oligopoly, and finally pure monopoly at the lowest level of competition. Therefore, the correct placement is d: pure competition, monopolistic competition, oligopoly, pure monopoly.