What type of industry has the characteristics where there are many producers, they are able to differentiate their product, the barriers to entry are low, and a firm in the industry has the ability to manipulate price to a certain extent. What type of industry is this? Will this type of industry be able to enjoy profits in the long run? Why? Also is this firm producing at productivity and allocative efficiency? Why?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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**Industry Analysis and Market Characteristics**

**Question:**

What type of industry has the characteristics where there are many producers, they are able to differentiate their product, the barriers to entry are low, and a firm in the industry has the ability to manipulate price to a certain extent?

*Key Considerations:*
- What type of industry is this?
- Will this type of industry be able to enjoy profits in the long run? Why?
- Also, is this firm producing at productivity and allocative efficiency? Why?

**Discussion:**

This scenario typically describes a monopolistic competition market. Characteristics include numerous producers, differentiated products, and low barriers to entry, allowing firms some degree of price control.

*Long-term Profitability:*
- In the long run, firms in monopolistic competition can experience normal profits due to the entry of new firms reducing excess profits.

*Efficiency:*
- Productivity Efficiency: Firms may not achieve full productive efficiency as they don't produce at the lowest possible cost.
- Allocative Efficiency: Firms might not reach allocative efficiency since prices are above marginal cost.

Understanding these dynamics helps in assessing market structures and business strategies within monopolistic competition.
Transcribed Image Text:**Industry Analysis and Market Characteristics** **Question:** What type of industry has the characteristics where there are many producers, they are able to differentiate their product, the barriers to entry are low, and a firm in the industry has the ability to manipulate price to a certain extent? *Key Considerations:* - What type of industry is this? - Will this type of industry be able to enjoy profits in the long run? Why? - Also, is this firm producing at productivity and allocative efficiency? Why? **Discussion:** This scenario typically describes a monopolistic competition market. Characteristics include numerous producers, differentiated products, and low barriers to entry, allowing firms some degree of price control. *Long-term Profitability:* - In the long run, firms in monopolistic competition can experience normal profits due to the entry of new firms reducing excess profits. *Efficiency:* - Productivity Efficiency: Firms may not achieve full productive efficiency as they don't produce at the lowest possible cost. - Allocative Efficiency: Firms might not reach allocative efficiency since prices are above marginal cost. Understanding these dynamics helps in assessing market structures and business strategies within monopolistic competition.
Expert Solution
Step 1

The industry is said to be Monopolistic Competition.

Monopolistic competition is the market structure where there are large no of firms selling differentiated products and the ability to have some extend of control over the price.

In the short run the industry experiences economic profits which in the long run becomes zero as there is free entry and exit in the industry.

 

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