IAI Actuarial Core Principles · Business Economics · Profit maximisation under imperfect competition
A market has many sellers, each offering a slightly differentiated product, with free entry and exit and no single firm able to affect rivals' decisions noticeably. Which market structure does this describe?
This is monopolistic competition. It combines many small sellers and free entry and exit with differentiated products, so each firm has some pricing power. Perfect competition needs homogeneous goods, while oligopoly and monopoly involve few firms or one firm with barriers to entry.
- APerfect competition
- BMonopolistic competitionCorrect
- COligopoly
- DPure monopoly
- Natural monopoly
Explanation
Many sellers, product differentiation and free entry and exit are the defining features of monopolistic competition. Perfect competition requires identical products. Oligopoly has few firms that are interdependent, and monopoly has a single seller with blocked entry.
Did you get it right without looking?
One question tells you little. A timed set on Profit maximisation under imperfect competition shows your real accuracy, how long you take and where you lose marks.
More Profit maximisation under imperfect competition questions
- A cinema in Pune charges Rs 150 for a ticket to students and Rs 250 to other adults for the same film and seat quality, and marginal cost pe…
- A Mumbai-based insurance broker faces the linear demand curve P = 200 - 4Q, where P is the fee in rupees and Q is the number of policies arr…
- A firm has constant marginal cost of Rs 20 and faces demand P = 100 - Q. Which price and quantity maximise its profit?
- Several Indian private health insurers are monopolistically competitive and spend heavily on advertising and brand building. Which is the mo…
- Which statement about advertising and branding in monopolistic competition is most accurate?
- Two firms, A and B, form a Cournot duopoly with inverse market demand P = 100 − Q, where Q = qA + qB, and zero marginal cost. Each chooses o…