Monopolistic Competition Essay

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ECONOMICS ASSIGNMENT (January 2012 Intake) TOPIC 3: MARKETS IN PRACTICE Part A: Short Answer Questions (8 marks) 1. (a) Identify the likely market structure for the hair care industry. (1 mark) ANSWER: The market structure for the hair care industry is monopolistic competition. (b) With reference to the hair care industry, explain TWO possible barriers to entry faced by potential firms intending to enter this market structure. (4 marks) ANSWER: The barriers to entry that faced by potential firms intending to enter monopolistic competition market structure is brand loyalty. The existing firms try to establish brand loyalty so that firm can gain some market power. For instance, L’Oreal establish brand loyalty through approach to customer wants and needs and ensures consumer will receive positive outcome after product usage. This can build trust with the customers and hence brand loyalty can establish. The other barrier to entry faced by potential firms is product differentiation such as differentiate their products through packaging or secret ingredient in order to persuade customers that their products are more unique and superior than rival brand. For instance, L’Oreal launches Garnier hair colouring line, Belle Couleur that help men and women to be gorgeous and to express their personalities through cosmetic. (c) Explain with reasons, the likely demand curve(s) faced by the individual firm in the hair care industry. (3 marks) Price Price D D --------------------------- --------------------------- ------------------------- ------------------------- P2 ---------------- PB
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