1.
DO YOU BELIEVE THE TOTAL NUMBER OF SUPPLIERS WITHIN A TYPICAL FIRM'S
BASES WILL INCREASE OR DECREASE? WHY?
Solution
The number of firms in the market supplying the particular product under consideration forms an
important basis for classifying market structures. The number of firms in an industry, according
to economists, determines the extent of competition in the industry. Both in perfect competition
and monopolistic competition, there are large numbers of firms or suppliers. Each of these firms
supplies only a small portion of the total output for the industry. In oligopoly, there are only a
few (presumably more than two) suppliers of the product. When there are only two sellers of the
product, the market structure is often called duopoly. Monopoly is the extreme case where there
is only one seller of the product in the market.
Perfect competition is an idealized version of market structure that provides a foundation for
understanding how markets work in a capitalist economy. The other market structures can also
be understood better when perfect competition is used as a standard of reference. Even so,
perfect competition is not ordinarily well understood by the general public. For example, when
business people speak of intense competition in the market for a product, they are, in all
likelihood, referring to rival suppliers, about whom they have quite a bit of information.
However, when economists refer to perfect competition, they are particularly referring to the
impersonal nature of this market structure. The impersonality of the market organization is due
to the existence of a large number of suppliers of the product