Question

1. Monopoly: For years, Tesla was the only company producing electric vehicles(EV). With a graph, show profit maximization quantity(q*) and price(p*) for Tesla.

2. Monopolistic competition: Now many of the other car manufacturing companies have started creating EVs. How q* and p* changes for Tesla with this new competition. Use a graph to explain.

Answer 1

ANS :

1. Monopoly

A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.

As given in the above situation, Tesla was the only company producing electric vehicles (EV). The profit Maximization quantity (q*) and price(p*) can be explained through graph:

The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost. The market demand curve, which represents the price the monopolist can expect to receive at every level of output, lies above the marginal revenue curve(MR). The result of the monopolist's price searching is a price of $8 per unit. This equilibrium price isdetermined by finding the profit maximizing level of output—where marginal revenue equals marginal cost (point c)—and then looking at the demand curve to find the price at which the profit maximizing level of output will be demanded.

2. Monopolistic Competetion

Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation.

As given in the above situation, now many of the other car manufacturing companies have started creating EVs, which creates a market of monopolistic competetion. The profit Maximization quantity (q*) and price(p*) can be explained through graph:

The monopolistically competitive firm decides on its profit-maximizing quantity and price in much the same way as a monopolist. A monopolistic competitor, like a monopolist, faces a downward-sloping demand curve, and so it will choose some combination of price and quantity along its perceived demand curve.To maximize profits, the would would choose a quantity where marginal revenue equals marginal cost, or Q where MR = MC.