Question

The wine industry is characterized by thousands of vineyards selling a variety of wines (Chardonnay, Sauvignon blanc, Pinot grigio Merlot, Cabernet sauvignon, Pinot noir, etc, each based on different varieties of grapes). Even within the same varieties, wines will differ subtly in taste based on soils, climate, age, and the fermenting process. The wine industry could best be characterized as:

a) perfectly competition

b) monopolistic competition

c) oligopoly

d) monopsony

Question 2

Background and instructions: Suppose you manage a restaurant in Blacksburg called Snack Shack. Your job is to decide price and quantity of meals. The demand for Snack Shack meals and the daily costs of operating your restaurant are contained in the following spreadsheet. Given the size of your restaurant, the maximum number of meals you could possibly serve in a given day is about 180. The spreadsheet includes information about the demand for your product (columns A and B). Your variable costs consist of labor (wait staff, cooks, cleaners) and food materials. The spreadsheet already includes estimates of your variable costs (columns E, F, G, and H). Note these costs are calculated using Excel formulas). Currently your fixed costs are $100 per day and you do not advertise.

Complete the Excel spreadsheet and answer the following question

Question: What is your total daily revenue (total sales) if you decide to charge $15 per meal?

a) $1.25

b) $353

c) $1,980

d) $2,565

e) $2,160

Answer 1

Q.1.

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes.

Hence the wine industry could best be characterized as Monopolistic competition.

Correct Ans - B