Chapter 15, Problem 1.1P

To determine

In which market Restaurant M falls according to its characteristics.

Answer to Problem 1.1P

The restaurant is in a monopolistically competitive market.

Explanation of Solution

The restaurant industry is a club of many firms serving varieties of foods. Each one tries to differentiate their cuisine through their unique foods. Restaurant M is famous for their Mexican food, especially for their unique margaritas and one-of-a-kind twists. The size of the market share owned by Restaurant M is way too small compared to the total size of the market. Thus, there is no domination by the firm in the market. Along with these characteristics, it is important to note that there are no barriers to entry and exit from the restaurant industry in the economy.

Thus, there is product differentiation in the industry. Also, there is freedom of entry and exit in the market and there is a large number of firms in the market. All these characteristics indicate that Restaurant M falls under the monopolistically competitive market.

Economics Concept Introduction

Market: A market is a place where the buyers and sellers interact with each other and the exchange of goods and services takes place between them at a mutually agreed price level.

Monopolistic competition: The monopolistic competition is a market structure where there is a large number of buyers and sellers in the economy, and there is product differentiation in the economy as well as freedom of entry and exit into the market.