Case Study as background to the assessment questions

You have been employed as part of the investments team working for a superannuation fund. One of your tasks is to examine the market for shares in firms in the Retail sector and firms that operate in the Banking sector.

The reason you have been given this task is because the investment manager wants to select investments to include in the superannuation fund that will provide a desirable combination of risk and return for the fund. The returns and the risks associated with firms in the Retail sector and Banking sector are different from the returns and the risks associated with firms in other industries like travel, entertainment, energy and resources so this will make it possible for the superannuation fund to benefit from the increased diversification.

You are aware that there are four (4) main market structures:

• Perfect competition
• Monopoly
• Oligopoly
• Monopolistic Competition

Question 1

You are looking at the email from your investment manager and she has asked you to provide her with the following information.

1. You are required to complete the form by entering YES or NO in the cells in the table shown below:

Key Characteristics	Retail sector	Banking sector
A Large Number of firms
A Price Maker
High Barriers to entry
Substitute Goods / Services are readily Available

1. Using your knowledge of the microeconomic theory of markets and your answers to part (a), determine which of the 4 main market structure types best describes the firms in the Retail sector and which of the 4 main market structure types best describes the firms in the Banking sector.

Main market Structure Type

Retail Sector

Banking Sector