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Homework answers / question archive / Which of the following pairs illustrates the two extreme examples of market structures? a
Which of the following pairs illustrates the two extreme examples of market structures?
a.) competition and oligopoly
b.) competition and monopoly
c.) monopoly and monopolistic competition
d.) oligopoly and monopolistic competition
Explanation: Market structures can be ranked in terms of concentration of firms participating in the economy (with 1 as with lowest market concentration, and 5 as the highest market concentration).
| Rank | Market structure | Number of participating firms | Other characteristics |
|---|---|---|---|
| 1 | Perfect competition | As many as an industry can hold | Firms do not influence the market price; buyers and sellers have perfect information; free entry and exit of firms; goods or services are homogenous or not differentiated. |
| 2 | Monopolistic competition | As many as an industry can hold | Firms can influence market price to some extent; buyers and sellers' knowledge of products are not same; free entry and exit of firms; goods or services are differentiated. |
| 3 | Oligopoly | Few firms, depending on industry | Firms can influence the market price; firms' individual behaviors are dependent on others' business strategy and can initiate competitive activities (e.g., price-cutting) among rivals; firms can also cooperate with one another if they want to; strong barriers to entry. |
| 4 | Monopoly | One firm | The firm (i.e., monopolist) influence market price; good or service offered has no close substitutes; strong barriers to entry. |
