Answer to Question #194375 in Macroeconomics for Abdul basit

Question

Maruti Udyog Ltd (MUL) enjoys monopoly in spare parts. Along with dealers, MUL is exploiting Maruti vehicle users.

Often the vehicle user has to change the clutch plate twice in six months and has to pay Rs.3,567/-. MUL chargers the price of clutch at imported cost while clutch plate is actually made by clutch auto private Ltd at Faridabad.

The replacement of a silencer costs Rs.800/-. The cost of spare parts and repairs by any reckoning is three to four times compared to Ambassador or Fiat.

A random sample indicates that every eighth car has faulty clutch. In the context of defective parts and exorbitant cost of repairs, saving in fuel in Maruti as compared to other auto makers is of little consequence.

Define a monopoly and stage its main features.

Why MUL is called a monopoly? Does it enjoy monopoly in car manufacture?

In what way do customers surfer from monopoly practices of MUL.

What do you suggest to remedy the situation?

Answer 1

Monopoly is a market structure where there exists limited persons or enterprises supplying a particular commodity.

The features are;

1. Limited suppliers of dealing with all the output in the market.

2. Uniqueness in the products supplied.

3. Market restrictions into and out of the industry.

4. Specialized information about the production techniques of the good which are unavailable to other potential producers.

MUT is a monopoly because it is the only one that deals with spare parts of MUT vehicles.

NO. Maruti does not enjoy monopoly as their exists Ambassador and Fiat which are other spare parts dealers.

Monopoly leads to exploitation of the customers because of higher charges and this leads to the suffering of the customers.

The government should introduce price caps to prevent the exploitations. This means that government intervention is important and the best way to go.