Page 189 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes 3. What would happen as a result in a case where a monopolistically competitive seller can
convince buyers that his/her product is of better quality and value than products sold by
rival firms?
4. What single circumstance in monopolistic competition best explains the nature of the
industry's relatively elastic demand curve in the market?

5. Think and answer – does the insurance industry have monopolistic competition – why/
why not?
6. If all firms in a monopolistic competitive industry were to merge would that firm produce
as many different brands or just one brand?
7. "In the long run, there is no difference between monopolistic competition and perfect
competition." – true, false, or ambiguous. Discuss this statement with respect to the
following:
(a) The price charged to consumers - true

(b) The average total cost of production - false
(c) The efficiency of the market outcome - ambiguous
(d) The typical firm's profit in the long run hide problem- true
8. Do airlines fit into the concept of monopolistic competition? Why or why not?

9. Why or why should not be the monopolistic competition regulated?
10. If the market became competitive, what would happen to output and price?
11. Discuss the main features of monopolistic competition. Complement your answer with
real world example.
12. Suppose a monopolistic firm has average revenue functions in three markets as follows:
P = 63 - 4Q where Q , Q and Q are quantities sold
1 1 1 2 3
P = 105 - 5Q in three markets.
2 2
P = 75 - 6Q
3 3
The total cost function is C = 20 + 5 Q, where Q = Q + Q + Q .
1 2 3
Find out the profit maximising output and price in the three markets. Also estimate
demand elasticities.
13. If all the brand names of essential drugs are abandoned, what will be the impact on the
society?

14. Discuss whether you find the monopolistic competition in the following industry:
Hotels and restaurants, Health Spas, Hair dressing.
15. How is equilibrium of a firm under monopolistic competition affected, when firms are
competing only through price changes? Discuss with example.
Answers: Self Assessment

1. (a) True (b) False (c) True (d) False
(e) False (f) False (g) False (h) True
(i) True (j) False (k) False

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