Chapter 12R, Problem 1MCQ

To determine

The correct option for given situation where difference between monopolistic competition and oligopoly can be defined.

Answer to Problem 1MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

Monopolistic competition refers to the type of market structure where manufacturer produces similar products which are substitutable. As per oligopolists, they sell only products that possess different features and cannot be substituted. Therefore, option b is correct.

Explanation for incorrect options:

a.

In oligopoly, the firms can collude and can control the price of their output as there are few firms and can take their decisions collaborate which is not possible in case of monopolistic firms. Therefore, option a is incorrect.

c.

In monopolistic competition, cartels cannot be formed instead it can be formed under oligopolistic firm. Cartels refers to the group where firms can explicitly agrees to decrease their output level in order to seek price increment. Therefore, option c is incorrect.

d.

Oligopolists firms can earn super normal profit in long run as they can control output level as well as prices of their product. Therefore, option d is also incorrect.

e.

In monopoly competition, they can earn profit as prices can be charged to customers for selling similar products with different features. Therefore, option e is incorrect.

Economics Concept Introduction

Monopolistic competition: It is one of the type of market structure, where there are many firms present and products they produces can be same with some differentiation.

Oligopoly market: Oligopoly refers to the market structure in which there prevail few firms with some barriers to entry and exit. It produces products that can be differentiated.