Chapter 10R, Problem 22MCQ

To determine

The correct option for given situation where characteristics of monopolistic competition is required to be define.

Answer to Problem 22MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

c.

As compared to monopolistic competition, the oligopoly firms have higher HHI, fewer firms and fewer barriers to entry and exit the market. It can be shown below:

  

Therefore, option c is correct.

Explanation for incorrect options:

a.

In monopoly competition, there exist more barriers as the sellers are the controller of the prices in the market. In oligopoly competition, there exist fewer barriers and fewer sellers. In this type of competition, entry is cost consuming. Therefore, option a is incorrect.

b.

In oligopoly competition, there are only fewer firms selling products with few entry and exit barriers. Though the HHI measure will be higher in oligopoly. Therefore, option b is incorrect.

d.

The HHI measure will be higher in the oligopoly competition as compared to the monopolistic competition. Also, the firms selling products are fewer in the market with fewer barriers to entry and exit. Therefore, option d is incorrect.

e.

In oligopoly, there are fewer sellers, fewer entry and exit barriers and higher HHI due more market concentration. Therefore, option e is incorrect.

Economics Concept Introduction

Herfindahl-Hirschman Index: This index refers to the measure of market competitiveness and market concentration. To compute HHI, the market share of each firm is squared and added up. The higher value of HHI indicates the higher concentration or higher competition.