Question

a) Monopoly: For years, Telsa was the only company producing Electric Vehicles (EV). With a graph show profit maximization quantity (q*) and price (p*) for Tesla. b) Monopolistic Competition: Now many of the other car manufacturing companies have started creating EVs. How q* and p* change for Tesla with this new competition. Use a graph to explain.

Answer 1

Ans) Monopoly is when there is single seller selling unique product. Demand curve for monopoly is less elastic due to non availability of substitutes. This enables monopoly to charge higher prices.

Monopolistic competition is where there are many sellers selling homogeneous but differentiated products. Here demand curve is more elastic due to more availability of substitutes. And hence the price is lower than the monopoly.

In both cases, a profit maximising firm produces the quantity where MR and MC curve intersect and then uses demand curve to determine the price.

(Steeper curve is less elastic and flatter curve is more elastic)

You will see that, price in monopolistic market is lower than monopoly while quantity is higher than monopoly.

Monopoly -МС MR eD Q РТ Monopolistic MC MRD 7