Detailed Analysis of Market Structures: EC201 Homework Assignment

This economics homework assignment analyzes various market structures, including monopoly, monopolistic competition, and oligopoly. The solution begins by examining a monopoly market, calculating profit maximization, price, and cost, and determining economic profit. It then proceeds to analyze market concentration using the four-firm concentration ratio and classifying the market as competitive or monopolistically competitive. The assignment also calculates the Herfindahl-Hirschman Index (HHI) to determine the market type, identifying it as an oligopoly. Finally, it provides a real-world example of monopolistic competition, using the restaurant industry to illustrate product differentiation, market power, and barriers to entry. The assignment includes calculations and explanations to support the answers, demonstrating a thorough understanding of market structure concepts.

Running head: MARKET STRUCTURE
Market Structure
Name of the Student
Name of the University
Student ID

1MARKET STRUCTURE
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................5
Answer 4..........................................................................................................................................6
Reference.........................................................................................................................................7

2MARKET STRUCTURE
Answer 1
(a) Ron’s Hamburger Joint is the only restaurant in town and thus it enjoys a monopoly market
structure. Therefore, given the firm structure of Ron’s Hamburger Joint, it can be said that the
Ron maximizes profit where marginal revenue (MR) equals marginal cost (MC)1. The
intersection point between MR and MC curve gives the production of hamburgers. Therefore, as
per the give figure Ron produces 20 hamburgers per hour.
(b) Given the production of Ron, price charged per hamburger is $6. The price decision is made
from demand curve which is above the intersection point between MR and MC. This is done to
earn super normal profit.
(c) Cost for per unit of hamburger production is $4. Total amount of hamburgers produced is 20.
Therefore, total cost of Ron’s Hamburger Joint is
Total cost=Cost per Hamburger × No .of Hamburger produced
¿ , Totalcost =4 × 20
¿ , Total cost =$ 80
Similarly, given the price of hamburger and its unit of production, total revenue earned by Ron’s
Hamburger Joint is
Total Revenue=Price per Hamburger × No. of Hamburger sold
¿ , Total Revenue=6 ×20
¿ , Total Revenue=$ 120
1 De Palma, André, and Julien Monardo. "Natural Monopoly in Transport." (2019).

3MARKET STRUCTURE
(d) Economic profit can be calculated by subtracting total cost from total revenue. Therefore,
economic profit Ron’s Hamburger Joint is
Economic Profit=Total Revenue−Total Cost
¿ , Economic Profit=120−80
¿ , Economic Profit=$ 40
Answer 2
(a) Market share of A is
Market share of A ( SA )= Total revenue of A
Total revenue of industry
¿ , Market share of A ( SA )= 12
100
¿ , Market share of A ( SA )= 3
25
Market share of B is
Market share of B ( SB ) = Total revenue of B
Totalrevenue of industry
¿ , Market share of B ( SB ) = 10
100
¿ , Market share of B ( SB ) = 1
10

4MARKET STRUCTURE
Market share of C is
Market share of C ( SC )= Total revenue of C
Total revenue of industry
¿ , Market share of C ( SC )= 5
100
¿ , Market share of C ( SC )= 1
20
Market share of D is
Market share of D ( SD )= Total revenue of D
Total revenue of industry
¿ , Market share of D ( SD )= 3
100
¿ , Market share of D ( SD )= 3
100
The four firm, concentration ratio (C4) of the given industry is
C4=( SA ++ SB + SC + SD )
¿ , C4=( 3
25 + +1
10 + 1
20 + 3
100 )
¿ , C4=(12+10+5+3
100 )
¿ , C4= 30
100
¿ , C4=0.30

5MARKET STRUCTURE
(b) From the calculation of four firm concentration ratio of 0.30, it can be said that the
concentration in the industry is 30%. It means that industry is competitive in nature as the
percentage of concentration is below 60 %.
(c) The market type of the industry is monopolistic competition as it is evident from the four firm
concentration that the largest four firms captures only 30% of the market share2. In addition to
that, fourth largest firm capture only 3%. Hence, the concentration of the market of industry is
low.
Answer 3
The Herfindahl-Hirschman Index (HHI) of the industry is
HHI =452+ 252+202 +102
¿ , HHI=2025+625+ 400+100
¿ , HHI=3150
The market type of the industry is oligopoly as the market concentration is well over
2500 as per the above calculation which indicates that the market is highly concentrated with low
competitiveness.
2 Bessen, James. "Information technology and industry concentration." Boston University School
of Law Law & Economics Paper Series 17-41 (2017).

6MARKET STRUCTURE
Answer 4
A real world example of monopolistic competition is market of restaurant industry. The
product of the restaurant industry is food but are differentiated3. With an objective to gain more
market share, every firm in the industry try to differentiate their product from the rival firms’.
For example, if one firm is offering Chinese food then to differentiate other firm offers Mexican
food. There are numerous firms in the industry like in the case of perfect competition. As the
products are differentiated there is negligible amount of market power to the firms, however, the
market power is not impactful and thus there is no barriers to entry and exit4. The firms in this
market earn zero economic profit. Thus, the characteristics of this market resembles
monopolistic competition.
3 Cosman, Jacob, and Nathan Schiff. "Delivery in the city: evidence on monopolistic competition
from New York restaurants." (2019).
4 Yanase, Akihiko. "Monopolistic Competition and International Coordination of Entry Policy
Revisited." (2019).

7MARKET STRUCTURE
Reference
Bessen, James. "Information technology and industry concentration." Boston University School
of Law Law & Economics Paper Series 17-41 (2017).
Cosman, Jacob, and Nathan Schiff. "Delivery in the city: evidence on monopolistic competition
from New York restaurants." (2019).
De Palma, André, and Julien Monardo. "Natural Monopoly in Transport." (2019).
Yanase, Akihiko. "Monopolistic Competition and International Coordination of Entry Policy
Revisited." (2019).