ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Its expensive to start a restaurant
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These big city restaurants often go out of business
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They all serve food and each one has distinct differences
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They all serve people and one serves most of the people
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Detailed explanation-1: -Restaurants are a monopolistically competitive sector; in most areas there are many firms, each is different, and entry and exit are very easy. Each restaurant has many close substitutes-these may include other restaurants, fast-food outlets, and the deli and frozen-food sections at local supermarkets.
Detailed explanation-2: -Monopolistically competitive industries are those that contain more than a few firms, each of which offers a similar but not identical product. Take fast food, for example. The fast food market is quite competitive, and yet each firm has a monopoly in its own product.
Detailed explanation-3: -Monopolistic competition is present in restaurants like Burger King and McDonald’s. Both are fast food chains that target a similar market and offer similar products and services.
Detailed explanation-4: -Fast food restaurants, hotels, gas stations, clothing stores, medical practices, legal firms, and hair salons are several industries that are monopolistically competitive, assuming they locate in areas with other companies that serve the same clientele.