Which of the following rankings illustrates the level of competition increasing from left (least compet- itive) to right (most competitive)?

Question

Which of the following rankings illustrates the level of competition increasing from left (least compet-

itive) to right (most competitive)?

a. perfect competition ! monopolistic competition ! oligopoly ! monopoly

b. oligopoly ! monopoly ! perfect competition ! monopolistic competition

c. monopolistic competition ! monopoly ! oligopoly ! perfect competition

d. monopoly ! oligopoly ! monopolistic competition ! perfect competition

Answer 1

The answer is D.

The least competitive situation is a monopoly, where there is only one supplier.

An oligopoly has few suppliers, so there is some level of competition, but not much. There is a tendency for the few suppliers to set high prices in an attempt to maximize profits.

Monopolistic competition has competition, so prices are set competitively to a degree.

Perfect competition is where there is lots of suppliers, in a commodity type environment. Lots of competition will tend to drive prices down.