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Bord Bia has reported that the number of microbreweries in Ireland has increased to 75 in 2018 (a fivefold increase since 2012) - Leaving Cert Economics - Question 2 - 2020
Question 2
Bord Bia has reported that the number of microbreweries in Ireland has increased to 75 in 2018 (a fivefold increase since 2012). Each brewery produces a range of pro... show full transcript
Worked Solution & Example Answer:Bord Bia has reported that the number of microbreweries in Ireland has increased to 75 in 2018 (a fivefold increase since 2012) - Leaving Cert Economics - Question 2 - 2020
Step 1
Explain one reason why the above industry is imperfectly competitive.
Answer
The industry is considered imperfectly competitive due to the presence of many small firms that operate independently and can influence prices. Each microbrewery functions with a degree of market power, allowing them to set prices above marginal cost due to their unique offerings of craft beers, lagers, and stouts.
Step 2
State and explain three other key characteristics of this market structure (other than your answer to (i) above).
Answer
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Product Differentiation: Each brewery offers unique products that distinguish them from competitors, which fosters brand loyalty among consumers.
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Ease of Entry and Exit: There are minimal barriers for firms to enter or exit the market, making it flexible for businesses to respond to demand changes.
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Many Buyers and Sellers: The market consists of numerous buyers and sellers, leading to competition and various choices for consumers.
Step 3
Explain, with the aid of a labelled diagram, the equilibrium position of a firm in short-run imperfect competition.
Answer
In short-run imperfect competition, equilibrium occurs at point E where the firm's marginal cost (MC) equals marginal revenue (MR). At this point, the firm determines its optimal quantity (Q1) to produce at price (P1). The average cost (AC) curve allows us to see if the firm makes a supernormal profit measured as the distance between P1 and the average cost line at C1 (where AC is below P1). A labelled diagram would typically illustrate MC, MR, AC curves, and highlight these points.
Step 4
With the aid of a labelled diagram, explain the impact which the entry of new firms would have on the equilibrium of the firm in (b)(i) above.
Answer
As new firms enter the market, the demand curve for existing firms will shift leftwards from D1 to D2, leading to reduced market prices. Over time, equilibrium shifts to a new point where price (P2) equals the average cost (C2) at quantity (Q2), reducing supernormal profits to normal profits as the market stabilizes.
Step 5
Explain the underlined term.
Answer
Non-price competition refers to marketing strategies and tactics used by firms to attract customers without altering prices. Firms utilize non-price competition to build brand loyalty and competitive advantage through aspects like product features, promotional activities, and customer experiences.
Step 6
Outline two examples of effective non-price competitive measures used by firms. Why do you consider these to be effective for the firms?
Answer
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Loyalty Programs: Firms use loyalty cards to reward repeat customers, fostering customer retention and encouraging purchases by offering discounts or rewards.
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Advertising and Promotions: Engaging advertising campaigns create brand awareness and appeal, which effectively differentiate a firm’s offerings in a crowded marketplace, making it more attractive to consumers.
Step 7
Is non-price competition beneficial to consumers? Outline two reasons for your answer.
Answer
Yes, non-price competition is beneficial as it can lead to greater product differentiation, providing consumers with more choices suited to their preferences. Additionally, it fosters brand loyalty, ensuring customers receive consistent quality and service, which promotes satisfaction and perceived value.