Technological innovation and or improvement is very critical

Technological innovation and or improvement is very critical to business growth and competitiveness. Given the four main types of market structures discussed, under which market structure is technological improvement most critical?

Solution

The 4 types of market structure are:

(1) Perfect competition.

In this market there are many buyers and sellers with free entry and exit. Sellers produce identical goods and are price takers, so demand curve is horizontal. Long run economic profits are zero.

(2) Monopolistic competition

There are many buyers are sellers. The sellers sell similar but slightly differentiated goods. Entry is free, and long run economic profits are zero. Firms are price setters. Demand curve is downward sloping.

(3) Oligopoly

There are only few firms who are price setters, and their price/output decisions are interdependent. Demand curves are downward sloping. Barriers to entry exists and firms make long run economic profit (if price is higher than long run average cost).

(4) Monopoly

There is only one seller who is a price setter. A monopolist earns long run economic profits because entry barrier is very high. Demand curve is downward sloping.

Out of the 4 structures, technological enhancement is most critical to monopolistically competitive market. Here. firms differentiate their goods from one another, and technologically enhanced product will contribute to such differentiation.