Chapter 68, Problem 2MCQ

To determine

To state: the market structure where individual firms advertise

Answer to Problem 2MCQ

The correct option is D i.e. oligopoly and monopolistic competition only.

Explanation of Solution

As far as a perfectly competitive firm is concerned it will not spend a huge amount of money to appeal to its consumers to buy more of the products. So, the individual firms advertise only in market structures such as oligopoly and monopolistic competition only.

In perfect competition, the number of buyers and sellers is very large and the firms are usually price takers therefore no individual firm has the power to influence the market price. Therefore there is no point in advertising.

On the other hand, in an oligopoly, there are barriers to entry and there are few firms in the case of Monopolistic competition there is differentiated product and there is freedom of entry and exit.

Economics Concept Introduction

Introduction:

Market structures: can be grouped into four categories: monopolistic competition, perfect competition, monopoly, and oligopoly. These categories differ from each other because of the following characteristics: There are many producers in perfect competition and monopolistic competition, only one in monopoly and a few in oligopoly.