The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?
The makers of Tylenol pain reliever do a lot of advertising and have very loyal customers. In contrast, the makers of generic acetaminophen do no advertising, and their customers shop only for the lowest price. Assume that the marginal costs of Tylenol and generic acetaminophen are the same and constant. a) Draw a diagram showing Tylenol's demand, marginal revenue and marginal cost curves. Label Tylenol's price and mark-up over marginal cost. b) Repeat part (a) for a producer of generic acetaminophen. How do the diagrams differ? Which company has the bigger mark-up? Explain. c) How might barriers to entry influence the behaviour of the makers of Tylenol? d) What factors would affect the extent to which the makers of Tylenol could engage in predatory or destroyer pricing to force out competitors in this market?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter10: Monopolistic Competition And Oligopoly
Section: Chapter Questions
Problem 19P: Andreas Day Spa began to offer a relaxing aromatherapy treatment. The film asks you how much to...
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