. A classic example of monopolistic competition is the restaurant industry. In w
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Question
. A classic example of monopolistic competition is the restaurant industry. In what ways does this industry show the characteristics of the monopolistic competition market? 2. George says, "If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will not be very different than if it were a perfectly competitive industry." Explain if he is correct and how you would respond to his reasoning. 3. The duopolist dilemma is that each firm would make more profit if both picked the _______ price, but both firms pick the _____ price. Explain why they do this. 4. What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure. 5. Critical Thinking: Most of the products you buy at a grocery store come from what type of competitive market? Why do you think this is so? 2. George says, "If the amount of product differentiation in a monopolistically competitive industry is very small, the outcome in that market will not be very different than if it were a perfectly competitive industry." Explain if he is correct and how you would respond to his reasoning. 3. The duopolist dilemma is that each firm would make more profit if both picked the _______ price, but both firms pick the _____ price. Explain why they do this. 4. What are the characteristics of an oligopoly? Using the concept of duopoly and the price leadership model, discuss demand and pricing strategies in an oligopolistic market structure. 5. Critical Thinking: Most of the products you buy at a grocery store come from what type of competitive market? Why do you think this is so?Explanation / Answer
1.
The classic example is the restaurant industry. Monopolistic competition is a situation where the product can be differentiated to allow the providers that opportunity to charge premium pricing for their product, which has imperfect substitutes. In the case of pizza, pizza restaurants compete on taste or style and develop a population of people who prefer their pizza, but would switch if the price was too high, yet will willingly pay a premium over what they could get at a cheaper competitor down the street.
The soap industry is likely the second most used example in that for the most part, soap is soap, but the soap industry has diverged in a way so that people have preferential favorites that are relatively identical substitutes for one another.
These markets only exist for products that are differentiable. Gasoline, corn, iron ore aren't that easy to differentiate, so result in more markets of perfect competition.
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