Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Question
Chapter 10, Problem 17PAA
To determine
Conditions in which the trigger strategy could be used to sustain the collusive level of advertisement.
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7
Subway v/s Big Mac
When subway launched it started taking market share of McDonalds because its food is regarded as fresh, healthy, on spot and made as per customer’s taste and preference. In 2003, McDonalds then replaced its traditional question “will you have fries with that” to “will you have an apple with that” as a part of its major reorientation of the product to match its customer’s preferences.
a) Explain why McDonalds has made this change? Refer to the conditions of demand of Big Mac?
b) What combination of two graphs (McDonalds and Subway) would you use to illustrate the above fast food situation? (movement along the curve or shift)
c) What factors were responsible for the changes in the fast food market? d) What would happen if they didn’t make any such changes?
e) According to you, how was the impact of this change in strategy of McDonalds?
encient?
Suppose that a company operates in the monopolistically competitive market for electric razors. The following graph shows the demand curve,
marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm.
Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Next,
place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost.
3;
100
50
90
80
88
+
70
70
60
550
40
PRICE (Dollars per razor)
30
30
10
MC
20
20
0
10
10
ATC
+.
?
Mon Comp Outcome
MR
Demand
20
30
40
50
60
70
80
90
100
QUANTITY (Thousands of razors)
Min Unit Cost
Chapter 10 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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Similar questions
- Suppose that a company operates in the monopolistically competitive market for denim jackets. The following graph shows the demand curve, marginal revenue (MR) curve, marginal cost (MC) curve, and average total cost (ATC) curve for the firm. Place a black point (plus symbol) on the graph to indicate the long-run monopolistically competitive equilibrium price and quantity for this firm. Nex place a grey point (star symbol) to indicate the minimum average total cost the firm faces and the quantity associated with that cost. (?) PRICE (Dollars per jacket) 100 90 80 70 60 50 ATC 20 40 30 20 10 10 MC MR Demand 0 + + 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Thousands of jackets) Mon Comp Outcome Min Unit Cost at the optimal the efficient scale. Because this market is monopolistically competitive, you can tell that it is in long-run equilibrium by the fact that P= ATC quantity for each firm. Further, the quantity the firm produces in long-run equilibrium is True or False: This indicates…arrow_forwardin the long run, representative firms in monopolistically competitive markets will just break even --- that is, earn zero economic profits. Yet some firms in highly competitive markets manage to continue to earn economic profits indefinitely. For example, perfumes, cosmetics, and hair care firm L’Oreal, in business since 1907, remains highly profitable today, despite competing in fiercely competitive product categories. How has L’Oreal managed to stay profitable for so long (clue: they have a research and development staff of over 1000 people).arrow_forwardwe know that the perfumes are differentiated. So what kind of market is the perfume market is it a perfect competition, monopolistic competition, oligopoly, or monopoly? please explain.arrow_forward
- The following graph represents a monopolistically competitive firm in long-run equilibrium. Place the black point (cross sign) on the graph to indicate the short-run profit-maximizing price and quantity for this monopolistically competitive company. Next, place the grey star on the graph to indicate the point where the LRAC reaches a minimum. PRICE PER UNIT (Dollars) 500 450 400 350 300 250 200 150 100 50 MC 0 0 50 LRAC MR Demand 100 150 200 250 300 350 400 450 500 QUANTITY (Units) Monopolistically Competitive Outcome Minimum of the LRAC The long-run equilibrium price is $ (Hint: Use the graph to find the numeric value of the price at equilibrium.) The long-run equilibrium quantity is units. The LRAC curve is at its minimum at a quantity of The long-run equilibrium price is units. the marginal cost of producing the equilibrium output. ?arrow_forwardQ20arrow_forwardNonearrow_forward
- Nonearrow_forwardDraw the graph of the product differentiation formula of Pepsi Industry.arrow_forwardQ4 "A monopolistically competitive market in which there are no entry barriers will have the identical long-run equilibrium as if the market were perfectly competitive." Is this statement correct? a. Yes, in the absence of entry barriers, firms in the monopolistically competitive market will expand until they are producing at the minimum of their LRAC curves, just as in perfect competition. b. No, because firms in the monopolistically competitive market do not produce at an output level where MC = MR, as in perfect competition, which leads to a different price and output in long-run equilibrium. c. Yes, in the absence of entry barriers, new firms enter the industry until industry price and output are identical to perfect competition. d. No, firms in the monopolistically competitive market earn economic profits in the long run because they are facing a downward-sloping demand curve, whereas in perfect competition they earn zero profits. e. No, because firms in the…arrow_forward
- Explain the role of brands in a monopolistic competition market. How can the pricing and profits for a firm in this market structure differ from perfect competition and when will the two market types reach the same outcome? Why does that make it essential for firms to have a strong brand identity? Give an example of a product with this type of market structure and discuss (briefly) how the firms have established their brands.arrow_forwardImage uploaded answer is strictly prohibitedarrow_forwardhelparrow_forward
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