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Questions and Answers
What is the primary function of market structure in economic analysis?
What is the primary function of market structure in economic analysis?
Which of the following best describes an oligopoly?
Which of the following best describes an oligopoly?
Why do oligopolies typically have few firms?
Why do oligopolies typically have few firms?
Which of the following is NOT a common characteristic of an oligopoly?
Which of the following is NOT a common characteristic of an oligopoly?
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What is a common product type sold in an oligopoly?
What is a common product type sold in an oligopoly?
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If the four largest firms in an industry control 40% or more of the market, economists consider the industry to be what?
If the four largest firms in an industry control 40% or more of the market, economists consider the industry to be what?
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Which of the following is true with respect to market share in an oligopoly?
Which of the following is true with respect to market share in an oligopoly?
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What does the example of the breakfast cereal industry primarily illustrate?
What does the example of the breakfast cereal industry primarily illustrate?
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Which of the following is a common strategy used by firms in an oligopoly to differentiate their products?
Which of the following is a common strategy used by firms in an oligopoly to differentiate their products?
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In an oligopoly, how does a firm's pricing decision typically affect the market?
In an oligopoly, how does a firm's pricing decision typically affect the market?
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What is a typical outcome when one firm in an oligopoly lowers its prices?
What is a typical outcome when one firm in an oligopoly lowers its prices?
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What is a significant barrier for new firms attempting to enter an oligopolistic market?
What is a significant barrier for new firms attempting to enter an oligopolistic market?
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What makes it difficult for firms that are already in an oligopoly to exit the market?
What makes it difficult for firms that are already in an oligopoly to exit the market?
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What are the primary means through which oligopolies promote their differentiated products?
What are the primary means through which oligopolies promote their differentiated products?
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If a manufacturer in an oligopoly raises prices, what is a likely reaction from other manufacturers?
If a manufacturer in an oligopoly raises prices, what is a likely reaction from other manufacturers?
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Standardized products may be differentiated by oligopolies using what means?
Standardized products may be differentiated by oligopolies using what means?
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Study Notes
Market Structure
- A market structure is an economic model of competition among businesses in the same industry
- Economists use market structure to examine competition and classify markets based on how competitive they are
- Different types of market structures influence how firms compete and how they set prices
Types of Market Structures
- Perfect Competition
- Monopoly
- Monopolistic Competition
- Oligopoly
Oligopoly
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A market structure where a few sellers offer similar products
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Less competitive than monopolistic competition
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A few large firms dominate the market, holding a large percentage of total sales
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High start-up costs limit the number of firms
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Four major characteristics:
- Few sellers, many buyers
- Standardized or differentiated products
- More control of prices
- Limited freedom to enter or exit the market
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In an oligopoly, firms have significant influence on the market's price.
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Economists define an oligopoly when the four largest firms control at least 40% of the market.
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The breakfast cereal industry is an example, with a few large manufacturers controlling a large share of the market.
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Oligopolies can sell standardized or differentiated products.
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Standardized products (e.g., steel) are often controlled by a few large firms
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Differentiated products (e.g., breakfast cereals) use marketing strategies to compete
- Examples of differentiation include brand name, service, or location.
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Businesses in oligopolies have more influence on prices because decisions by one firm influence the entire market, e.g., price cuts by one manufacturer might cause similar cuts by competitors.
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High start-up costs and patents create significant barriers to entry for new firms
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Existing firms often have established brands and resources that make it challenging for new businesses to successfully enter the market, e.g., agreements with grocery stores to secure desirable shelf space.
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Once established, even when a major company loses money, they may face difficulties in exiting the market because of the scale and complexity of their operations
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Description
Explore the different types of market structures, focusing on oligopoly. Understand how various market conditions influence competition, pricing, and the number of sellers in the market. This quiz will help clarify key concepts for economic analysis.
