Market structures: from perfect competition to monopoly

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on a strawberry market (all made up for practice). Card A, "Strawberries (made up)". Written for this sheet. Table, columns Price per box | Boxes buyers want | Boxes farms offer: $4 | 1,200 | 400; $5 | 1,000 | 600; $6 | 800 | 800; $7 | 600 | 1,000; $8 | 400 | 1,200. Card B, "New farms enter (made up)". Written for this sheet. Summary in our words, not a quotation: profits tempt new farms. At every price, farms now offer 200 more boxes than card A shows. Card C, "A health report (made up)". Written for this sheet. Summary in our words, not a quotation: a report praises strawberries. At every price, buyers now want 600 more boxes than card A shows.

3. 1.

   Kira uses cards A and B. After the new farms enter, what happens at the old price of $6, and which way does the price move?

   • At $6 buyers want 1,000 and farms offer 800, a shortage of 200, so the price rises
   • At $6 farms offer 1,000 and buyers want 800, a surplus of 200, so the price falls
   • At $6 nothing changes, since entry affects the long run and the market keeps its price today
   • At $6 farms offer 600 and buyers want 800, a shortage of 200, so the price rises
4. 2.

   Pia uses cards B and C together. Before checking the numbers, what can be said about the price and the number of boxes sold?

   Use the picture in question 1.

   • Boxes sold rise for sure; the price could rise, fall or stay put, depending on the larger shift
   • The price rises and quantity rises, since a health report raises the price of the fruit
   • The price falls and quantity falls, since farms offering more fruit need fewer buyers to sell
   • The price is unchanged and quantity is unchanged, since new farms and new buyers cancel each other
5. 3.

   Zee uses all three cards. Where does the market settle once both shifts happen?

   Use the picture in question 1.

   • At $8 with 1,000 boxes: demand rises 600 and the price must climb to ration those buyers
   • At $6 with 1,200 boxes: the price stays and the two shifts add equal amounts
   • At $7 with 1,200 boxes: the bigger demand shift raises the price $1, and quantity rises by 400
   • At $5 with 1,000 boxes: new farms push the price down and the health report adds few buyers

6. Use this

   Cards A to C on two firms with pricing power (all made up for practice). Card A, "An app with no rival (made up)". Written for this sheet. Summary in our words, not a quotation: at a price of $20 a month the app has 1,000 users. At $22 it has 940 users. Each user costs the firm $8 a month to serve. Card B, "A second firm (made up)". Written for this sheet. Summary in our words, not a quotation: a second firm with no rival faces demand with an elasticity of 2 at its price of $20. Each unit costs it $10 to make. A firm gets the most profit where the extra revenue from a unit equals its extra cost, and extra revenue is price times (1 minus 1 divided by the elasticity). Card C, "A price cap (made up)". Written for this sheet. Summary in our words, not a quotation: a regulator proposes to cap the second firm's price at $9.

7. 4.

   Luz uses card A. Should the app raise its price from $20 to $22?

   • No: the price rise loses 60 users, and each lost user is a $20 loss that the higher price cannot repay
   • No: demand is elastic, so a higher price cuts revenue below the $20,000 it earns now
   • Yes: elasticity is only 0.6, so revenue rises to $20,680 and costs fall, lifting profit to $13,160
   • Cannot be decided: with only two prices on the card, no profit comparison can be made at all
8. 5.

   A critic says the second firm's $20 price is a 100 percent markup over its $10 cost, so it is overcharging. Tala tests this with card B. What is the verdict?

   • Weak: elasticity measures how buyers react to quality, and the markup is about the cost of the product
   • Strong: any price above the $10 cost is overcharging, since a fair price equals what it costs to make
   • Strong: a price twice its cost is a markup no firm facing buyers could keep, so the firm is overcharging
   • Weak: at elasticity 2, extra revenue is $10, equal to the $10 cost, so $20 is the firm's best price
9. 6.

   Esme reads card C with card B. What is the likely effect of capping the second firm's price at $9?

   • Buyers would get cheaper units and the firm would keep selling as many as before
   • The firm would earn a bigger profit, since a lower price raises the number of buyers
   • The firm would lose $1 on each unit at $9, so it would cut back supply or leave the market
   • Nothing changes, since the firm already sets its price at $20 and a cap of $9 is not binding

10. Use this

    Cards A to C on merger rules (card A is a summary of the Justice Department's guidelines; cards B and C are made up). Card A, "How the guidelines measure concentration". Source: U.S. Department of Justice and Federal Trade Commission, Merger Guidelines (2023), Guideline 1 (justice.gov/atr/merger-guidelines), read Nov 14, 2026. Summary in our words, not a quotation: the HHI is the sum of the squares of the market shares, with shares in percent. A market with an HHI over 1,800 is highly concentrated. A merger that raises the HHI by more than 100 points is a significant increase. A merger is presumed harmful to competition if the market is highly concentrated afterward and the HHI rises by more than 100, or if the merged firm's share is over 30 percent and the HHI rises by more than 100. The presumption can be rebutted with evidence. Card B, "Market P (made up)". Written for this sheet. Summary in our words, not a quotation: four firms have shares of 30, 25, 25 and 20 percent. The two firms with 25 percent plan to merge. Card C, "Market R (made up)". Written for this sheet. Summary in our words, not a quotation: ten firms each have a 10 percent share. Two of them plan to merge.

11. 7.

    Ari uses cards A and B. What is market P's HHI today, and how concentrated is it?

    • 1,275, which is not highly concentrated: half of the 2,550 total, since two firms count
    • 100, since the shares add to 100 percent and the HHI of a market equals that total
    • 2,550, which is highly concentrated: the squares 900, 625, 625 and 400 add to 2,550, above 1,800
    • 900, the square of the largest share, which is under 1,800 and so not highly concentrated
12. 8.

    The two 25 percent firms in market P merge. Noah applies card A. Is the merger presumed harmful, and why?

    • No: the HHI would rise by 50 points, since the two firms' shares of 25 add to 50
    • Yes, and the merger must be blocked, since a presumption means the merger is judged illegal
    • Yes: the HHI would rise by 1,250 to 3,800, above 1,800, and the merged firm's share of 50 is over 30
    • No: the merged firm's share of 50 percent is below 100 percent, so the guidelines are not met
13. 9.

    Two firms with 10 percent each merge in market R. Bo applies card A. Which statement is best supported?

    • The merger is harmless, since the guidelines raise no presumption and so no harm to buyers can follow
    • The merger is presumed harmful, since the HHI rises by 200 points, more than 100
    • The merger is presumed harmful, since the market's HHI of 1,000 today is already over 1,800
    • The HHI rises 200 to 1,200, under 1,800, and the 20 percent share is under 30: no presumption

14. Use this

    Cards A to C on a water utility (all made up for practice). Card A, "A water utility (made up)". Written for this sheet. Summary in our words, not a quotation: laying pipes costs $100,000 a month, whether the utility sells a little or a lot. Each unit of water then costs $2 to deliver. At a price of $4 customers buy 50,000 units; at a price of $2 they buy 80,000 units. Card B, "If two utilities split the town (made up)". Written for this sheet. Summary in our words, not a quotation: each would lay its own pipes at $100,000 a month, and each would serve half the customers. Card C, "Two proposals (made up)". Written for this sheet. Summary in our words, not a quotation: Proposal M sets the price at the $2 delivery cost. Proposal N sets the price at $4, the average cost.

15. 10.

    Milo weighs proposal N against proposal M. Which statement about proposal N is best supported?

    • N is the best arrangement, since it lets the utility cover its costs and nothing else matters
    • N loses money, since a price of $4 is above the $2 cost of each unit and so it cannot cover the pipes
    • M is better, since it sells 80,000 units and the utility's losses are the town's business
    • N lets the utility break even, but 30,000 units that cost only $2 each to deliver go unsold at $4