Given three graphs representing different market structures, how would you describe the market of each firm shown in the graphs?

• A. Graph 1: Oligopoly, Graph 2: Monopoly, Graph 3: Perfect Competition
• B. Graph 1: Monopolistic Competition, Graph 2: Perfect Competition, Graph 3: Monopoly
• C. Graph 1: Monopoly, Graph 2: Oligopoly, Graph 3: Perfect Competition
• D. Graph 1: Perfect Competition, Graph 2: Monopoly, Graph 3: Monopolistic Competition

Answer: (D)

Verified step by step guidance

1. Step 1: Understand the key characteristics of each market structure. For Perfect Competition, firms are price takers with many sellers and identical products. For Monopoly, there is a single seller with significant market power and unique products. For Monopolistic Competition, many sellers offer differentiated products with some degree of market power.
2. Step 2: Analyze the features shown in each graph, such as the shape of the demand curve, the number of firms, and the firm's ability to set prices. For example, a perfectly competitive firm faces a horizontal demand curve, a monopolist faces a downward-sloping demand curve, and a monopolistic competitor faces a downward-sloping but more elastic demand curve.
3. Step 3: Match the characteristics observed in each graph to the definitions of the market structures. Identify which graph shows a horizontal demand curve (Perfect Competition), which shows a single firm with market power (Monopoly), and which shows many firms with differentiated products (Monopolistic Competition).
4. Step 4: Use the process of elimination to assign the correct market structure to each graph based on the observed features and the definitions. This helps confirm the correct labeling of Graph 1, Graph 2, and Graph 3.
5. Step 5: Summarize your findings by clearly stating which graph corresponds to which market structure, ensuring your reasoning aligns with the economic characteristics of Perfect Competition, Monopoly, and Monopolistic Competition.