Analysis of Market Structure

Five factors determine market structure:

1 The number and relative size of firms supplying the product;

2 The degree of product differentiation;

3 The power of the seller over pricing decisions;

4 The relative strength of the barriers to market entry and exit; and

5 The degree of non-price competition.

[Practice Problems] A market structure with relatively few sellers of a homogeneous or standardized product is best described as:

A.       oligopoly.

B.        monopoly.

C.        perfect competition.

[Solutions] A

Few sellers of a homogeneous or standardized product characterizes an oligopoly.

[Practice Problems] Market competitors are least likely to use advertising as a tool of differentiation in an industry structure identified as:

A.       monopoly.

B.        perfect competition.

C.        monopolistic competition.

[Solutions] B

The product produced in a perfectly competitive market cannot be differentiated by advertising or any other means.