Question

1. Provide me the characteristics of a monopolistic competitor. What must they do to be certain of their survival?

2. Technological advance is a 3 step process of intervention, innovation, and diffusion. Explain each step. Why is research and development so vital to the success of any firm?

3. Ologopolist have an interdepent relationship with their competition. Explain what this means. What is collusion and why are the ologoplist most vulnerable to this.

4. A pure monopoly has no competition yet it is not guaranteed a profit, explain this. What is a natural monopoly. Why do they exist ? How are they controlled. Provide an example.

Answer 1

1. Monopolistic markets have following charactristics: a. Differentiated product on the basis of Physical differences like size, shape or Quality differences or location differences o product image.b. Firms are price makers and can decide own product prices. c. entry for new firms is not having any barriers.Hence ease of entry/exit.

For their survival they have to keep differentiating the product and hence need a lot of investment in research and development of new products with additional features and also keep on coming with new technology.

Eg. Apple phones- Eve though the competition is higher, Apple Inc can deal with it with differentiated product and brand image.

2. Technological advance is a 3 step process of intervention, innovation, and diffusion.

Let us take an example- If there is a problem of handicapped which are unable to walk. Then interest groups wanting solution to this problem will 'intervene' by understanding the nature of a problem. 'Innovation' is a new product development to make walking possible. 'Diffusion' is to explain how, why, and at what rate new ideas and technology spread.

If technology is innovative, implementable then it can be diffused easily and also people accepting it will be easier.

research and development so vital to the success of any firm because as mentioned in answer 1, to maintain product differentiation it is important to invest in R & D.

It offers following advantages:

1. Early bird advantage: Example: Electric cars

2. Reduction in costs: Eg. Robots

3. Product uniqueness: Eg. Spacex

Hence R & D keeps companies ahead of competitors.