QUESTION 1:

In monopolistic competition, there exist many firms in the industry producing homogenous products. When consumers perceive that one firm has overpriced its products, the consumers switch brands since brand loyalty has limits. At that point, the firm has entered the competitive zone. This explains why in monopolistic competition firms differentiate their products to gain monopoly price setting powers.

QUESTION 2:

Oligopolies exist for reasons such as economies of scale, and the presence of market barriers such as patents, advertising campaigns that do not allow new firms the opportunity or chance to establish a presence, and desire to merge.

Oligopolists productsinclude FORD, Verizon, Apple, Anheuser-Busch, and Sony.

Oligopoly and monopolistic competition are distinguished by the number of firms operating in the market, type of product whether homogenous or differentiated, presence of barriers to entry, and the competition strategy whether price-based or product-based.

QUESTION 3.

Advertising is entrenched because it is one of the ways firms maintain economic profitability. It allows firms to generate demand for their products, and it is the only way firms can compete and increase their market share. It also acts as a barrier to entry.

Advertising helps consumers by providing information about new products in the market and informing them about product improvements. Advertising also encourages competitiveness. Advertising may lead to increased output by promoting efficiency.

Advertising may be excessive especially in cases where it results in persuasion and manipulation of the consumer as opposed to information.

QUESTION 4.

The firm that dominates the beer industry is Anheuser-Busch.

From the demand side, fewness in the beer industry can beattributed to a shift from tavern consumption to domestic home consumption and shift in consumer preferences in favor of lighter, drier beers which are predominantly being produced by the larger beer brewers.

On the supply side, factors contributing to the fewness include advances in technology and television advertising that has placed larger brewers at an advantage, and extreme product differentiation which favors the few big firms to expand further.

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