Question

How can solving the Monopoly’s firm problem explain the competition between Pepsi and Coke?

Answer 1

Sol :

(i) Monopoly form of competition is a competition where only one firm is selling the unique product and many buyers of the product. The problemfor the Monopoly's firm is its Inefficiency . As, monopoly firm charges higher prices and selling lower amount of Quantity. Due to this monopoly firm is unable to achieve the efficiency level of output.

This problem can be solved only when monopoly firm sell more quantity of output by decreasing price of the goods . Monopoly firm should sell that level of output where its profit are maximised then this inefficiency is solved and monopoly will be able to achieve its efficiency level of output.

(ii)Competition exist between Pepsi and Coke is of OLIGOPOLY Form of Market.

{Oligopoly is a form of market where few sellers selling homogeneous product and there are many buyers of the product. }

In oligopoly form of market , firm prefers not to indulge in price wars if Pepsi lowers its price then in oligopoly the other firm (Coke) may decrease the price more than before. So they prefer not to enter in price wars but to make diffentiation by way of advertising , product.