Answers

2. " Monopolies and Oligopolies have more market power

than firms in monopolistically competitive and perfectly
competitive industries. "
A firm under perfect competition is price taker and not a
price maker. This is because the number of firms is so large
that the share of an individual firm is only a small fraction of
the whole market supply.
Therefore, no individual firm can influence the market price
by varying its sale. This means the price is constant for a firm.
Hence, the demand curve of a firm under perfect
competition is a horizontal straight line.

Also, in perfect competition all the firms produce

homogenous products or the products are perfect substitutes
of each other. So, no firm can earn extra normal profits by
increasing its price because if the price gets higher than the
existing market price then the buyers would shift to other
firms. Hence, the firm has no control over the price.
Under monopolistic competition there are many sellers of
the product but the product of each seller is different from
one another. Product differentiation is carried out through
brand name.
Example - Firms producing different brands of soap, as in,
Lux, Dettol, Boutique etc.
A firm under monopolistic competition exercises partial
control over price because of product differentiation.
Difference in design, colour, weight, packaging attracts the
buyers which can make them buy the product even at higher
price.
But full control over price is ruled out because
1) there are many competitors in the market
2) there is large number of close substitutes
The demand curve of the firm under monopolistic
competition is downward sloping due to partial control over
price. Quantity sold increases when price is reduced.
Both under monopoly and monopolistic competition, the
demand curve is downward sloping but under monopolistic
competition the demand curve is much flatter. This means it
is more elastic. A slight increase in its price would shift its
buyers to another firm.
In monopoly market there is a single seller of the product
with no close substitutes.
Example - Indian Railways (earlier)
Now after partial privatisation it can no more be called a
complete monopoly.
A monopolist has complete control over price and can also
practice price discrimination. Therefore, a monopolist is a
price maker. The reasons are: -
1. There is no competition because it is the single seller
2. There are no close substitutes. So, the buyers cannot shift
to another product
3. There are barriers to the entry of new firm. Therefore, the
existing firm faces no challenge
Still, this does not mean that the monopolist can sell any
amount at any price because the quantity demanded
depends upon the buyers. There is an inverse relationship
between price and demand. Therefore, the demand curve for
a monopoly firm slopes downward.
The monopoly demand curve is steeper than monopolistic
competition or it less elastic than monopolistic competition.
Under Oligopoly there are a few big firms and a large number
of buyers for the commodity. Here each firm has a share in
the market. Therefore, price and output decision of one firm
impacts the price and output decision of the rival firms in the
market.
Example - car producers in the market
Toyota, Ford, BMW etc
The Oligopolistic firms make market control through
advertising which generates brand loyalty from the
consumer’s side.
Hence, we can clearly see that monopolies and Oligopolies
have more market power than firms in monopolistically
competitive and perfectly competitive markets.

6.