Sart Bimpson, an economics student, believes that a beer sold by one particular shack on the beach is completely different from an identical beer produced by the same factory and sold by the luxury hotel adjacent to the shack. The response that would best describe Sart's belief is:

Question

Quizplus · Accepted Answer

Sart believes that the product is differentiated among the sellers, indicating that he thinks that the beer sold by the shack and the luxury hotel are perceived as different due to some non-price attributes such as quality, brand, packaging or location. This is a characteristic of a monopolistically competitive industry, in which firms differentiate their products in order to capture a market niche and have some degree of market power to influence the price of their own product. However, this does not imply that the market is not competitive, as there are many other firms offering close substitutes and the barriers to entry are low. Therefore, (A) is incorrect as there is no indication of perfect competition, (B) is incorrect as there is no evidence of a monopoly, and (D) is incorrect as there is no indication of an oligopoly with a few dominant firms controlling the market.

Sart Bimpson, an Economics Student, Believes That a Beer Sold