1) In what type of market do chocolate producers operate and what is the effect on a high-quality chocolate producer as retailers “push back” in response to consumers moving to lower priced ‘private label’ chocolate?
Chocolate producers sell in ____________, and as retailers “push back”, a high-quality chocolate producer lowers the price of chocolate and sells a ____________ quantity.
Wrong! - What are the characteristics of monopolistic competition and perfect competition? Which market type describes the market in which chocolate producers operate?
As retailers “push back”, the demand for high-quality chocolate decreases. A chocolate producer maximizes profit by setting the marginal cost of production equal to marginal revenue and charging the highest price that retailers will pay. As the price of chocolate falls, how does the quantity of chocolate sold change?
Well Done! - Chocolate producers sell in monopolistic competition—a large number of firms that make similar but slightly different chocolate compete on product quality, price, and marketing, and firms are free to enter or exit the market.
As retailers “push back”, the demand for high-quality chocolate decreases. A chocolate producer maximizes profit by setting the marginal cost of production equal to marginal revenue and charging the highest price that retailers will pay. With a decrease in demand, the chocolate producer charges a lower price and sells a smaller quantity of chocolate.
