Consider the following five descriptions of markets. Place them in order from most competitive to least competitive: (i) Hundreds of firms sell products with high levels of differentiation, and barriers to entry are low. (ii) Concentration ratio of the top seven firms is 70%. Firms sell slightly differentiated products. High barriers to entry. Firms do not engage in much non-price competition. (iii) One firm selling a unique product. Barriers to entry are very high. (iv) Concentration ratio of the top seven firms is 70%. Firms sell similar products. Low barriers to entry. Evidence of competition among the firms. (v) Hundreds of small firms each have a tiny percentage of market share. Firms sell similar products. No barriers to entry.

Question

BlackTom AI · Accepted Answer

We start by comparing the markets described to arrange them from most competitive to least competitive.

Option (v) describes hundreds of small firms, each with a tiny market share, selling similar products with no barriers to entry. This is the classic setup of perfect competition or extremely competitive markets: many sellers, homogeneous products, and free entry. Therefore, (v) is the most competitive among the descriptions.

Next, (i) states hundreds of firms selling products with high differentiation and low barriers to entry. This corresponds to monopolistic competition: many firms, differentiated products, and relatively easy entry, which is less competitive than perfect competition but still quite competitive. So (i) comes after (v).

Turning to (iv), it has a concentration ratio of the top seven firms at 70%, firms selling similar products, and low barriers to entry, with evidence of competition among the firms. This setup aligns more with an oligopolistic structure with some competitive pressure due to low barriers and product similarity, making it less competitive than monopolistic competition (i). Therefore (iv) should come after (i).

Now consider (ii): it describes a concentration ratio around 70%, slightly differentiated products, high barriers to entry, and little non-price competition. High barriers to entry and limited competition indicate a less competitive market than (iv). Thus (ii) is more restrictive and should come after (iv).

Finally, (iii) indicates a single firm selling a unique product with very high barriers to entry. This is a pure monopoly, which is the least competitive market structure among the described options.

Putting these assessments in order from most competitive to least competitive yields: (v), (i), (iv), (ii), (iii). This matches the arrangement given in option b, which lists (v), (i), (iv), (ii), (iii) in that sequence.

MUF0061 Economics Unit 1 - Semester 1, 2025

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