Question

1. The monopoly on toad ladders is technically still intact, but their profits have encouraged a very large number of competing copycats with lines of 'frog ladders', 'toad hurdles', 'amphibian ramps' and so on. Their lawyer tells them there's nothing they can do but accept the competition. what type of market structure does this appear to be becoming? What long-run results are they likely to see? Would fighting the competition with advertising change things? 8. Having failed to build adequate barriers, the toad-ladder industry is being wracked by destructive competition from a few companies allowed across the strait from New Brunswick by the Link, but you've been reading about supply management and get the idea that what the industry really needs is a cartel. First of all, how would that work? Why might the others agree? What problems might you run into later on, despite the incentive to collude? 9. In the end two firms control the Toad ladder market, and are considering whether to maintai their collusive agreement and higher price or whether to cheat on each other. Each thinks their prof they continue to honour the agreement will be $5000 a week, but only $1000 if they get cheated on hey cheat, but the other firm doesn't, their profit will be $10,000, but only $3000 if they both chea Vhat will they do? Explain

Answer 1

7. The type of market structure that this is appearing to become is a monopolistic competition market as there is a large number of small sellers, selling differentiated but close substitute products. Toad Ladders are facing noticeable competition from other suppliers in the market.

As all the sellers in the market are price makers, the demand in the long run in a monopolistic competition becomes highly elastic, sensitive to changes in the price. Since there are a lot of close substitutes, in the long run, the economic profit will be Zero (0), since the demand curve of the firm will shift and bring the firm to a break-even.

Advertising is one of the primary tools of attaining market power for monopolistic competition. Advertising helps the sellers to avoid market price competition and will help curb the demand elasticity. The willingness to consume increases, and if the average cost per unit does not increase, it definitely helps the seller.

8. A cartel is like an association created with a formal agreement between sellers in a market structure that acts together as if they were a single producer and thus can fix prices for the goods they produce and the services they render, without competition. The other firms like Toad Ladders can come in an association to avoid competition.

A cartel assures profits and gives equal market power. The cost of advertisement and other promotions are also borne by the cartel. On the other side, the power of negotiation do not lie in the hands of the buyers, and the cartel does not allow new entrants entering the market.