Reference no: EM132407298

Instructions:

Consider the hand bag market.

Assume this market is monopolistic competition.

1. Select a company and its handbags and explain how their handbags are distinguished in the market. (For example, Bottega Veneta uses a cross woven leather that makes its hand bags, supple, durable and attractive).

Because of that distinguishing characteristic, assume your company is earning a profit.

2. Please draw a monopolistic competition diagram showing that this company is earning a profit

3. Assume now that competition has heated up and a competitor has a handbag out that is similar to your own (For example Michael Kors might come out with a cross hatched leather hand bag). How is this competition and show how it effects the demand of your handbag as well as your profits on the diagram.

4. Given this event, assume that the company would like to maintain its profits. Explain what it might do, and explain how it would effect your diagram.

5. Assume that your handbag uses color changing, heat sensitive material, and competitors copy that approach. This increases the demand for the resource you use to make the bag - the heat sensitive material. Show and explain the effect of that market change on your company's monopolistic competition diagram. Also, what happens to your selling price and profits?

6. What are some of the efficiency issues with monopolistic competition as they relate to your example..

7. What are some of the advantages of monopolistic competition as they relate to your example.