1) In what type of market is macaroni and cheese traded? How does Kraft make an economic profit?
The market is ___________ and Kraft makes an economic profit by____________.
Wrong! - Check the definitions of market structures.
Is a market with a large number of firms, many of them small, producing an even larger number of differentiated products, an example of oligopoly? Kraft would like to operate behind a barrier to entry, but is that a choice available to Kraft?
A market with a large number of firms is very competitive but what other features make it perfect competition. Don’t all firm try to maximize economic profit? How many firms are there in a monopoly? Don’t all firms charge the highest price that buyers are willing to pay for the profit-maximizing quantity?
Well Done! - A large number of firms, many of them small, producing an even larger number of differentiated products, makes the market for macaroni and cheese an example of monopolistic competition. Kraft must continuously develop new varieties to avoid competition driving its economic profit to zero.
