CFA Level I · CFA Level I Exam · The Firm and Market Structures
A regulator observes that an industry has many sellers, each offering a differentiated product, with low barriers to entry and significant spending on advertising. The structure is most likely:
The industry is most likely monopolistic competition. Many sellers with differentiated products, low entry barriers and heavy advertising point to this structure, whereas oligopoly has few dominant firms and high barriers, and perfect competition has identical products with no need for advertising.
- AMonopolistic competitionCorrect
- BOligopoly
- CPerfect competition
Explanation
Many sellers, product differentiation, easy entry and non-price competition such as advertising characterize monopolistic competition. Oligopoly has few firms and high barriers, and perfect competition has identical products.
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