Test: Imperfect Market - JAMB MCQ

In a pure monopoly, there is only one firm operating in the market, which has complete control over the supply of a particular good or service. This firm faces no competition and can set prices and quantities without being constrained by other firms' actions.

Discriminatory monopoly occurs when a monopolistic firm charges different prices to different groups of consumers based on their willingness to pay. This pricing strategy allows the firm to maximize its profits by extracting more value from consumers with higher willingness to pay.

Monopolistic competition is a market structure where there are many firms selling similar, but not identical, products. Each firm has some degree of product differentiation, which means they can compete based on factors such as branding, quality, or location.

In the short run, an imperfectly competitive firm maximizes its profit by producing where marginal revenue (MR) equals marginal cost (MC). This equilibrium condition ensures that the firm is maximizing its revenue relative to its costs.

In the long run, new firms can enter the market in response to positive economic profits earned by existing firms. This entry increases competition and reduces market power, causing economic profits to diminish until they reach zero. Therefore, in the long-run equilibrium of an imperfectly competitive firm, economic profits are zero.

Imperfect markets assume that there is imperfect or incomplete information available to buyers and sellers. This lack of perfect information can lead to market inefficiencies, such as information asymmetry or market power.

An imperfect market is characterized by a downward-sloping demand curve, which means that as the price increases, the quantity demanded decreases. A perfectly elastic demand curve implies that even a slight increase in price would cause the quantity demanded to drop to zero, which is not typical in an imperfect market.

A pure monopoly is the only firm in the market, giving it significant market power. The monopolist faces a downward-sloping demand curve because it can sell more quantity only by lowering the price. This implies that the monopolist must choose a lower price to sell more units of its product.

Product differentiation is a key characteristic of monopolistic competition. Firms in this market structure can differentiate their products through unique features, branding, advertising, or other non-price factors. This differentiation allows firms to have some degree of control over the price and quantity they can sell.

Barriers to entry are factors that make it difficult for new firms to enter a market and compete with existing firms. In an imperfect market, access to distribution channels can be a barrier to entry, as established firms may have exclusive agreements or control over the channels through which products reach consumers.