Answer to Question #168287 in Microeconomics for Chhavi Nagar

Question

"Snacks and cold drinks are much more expensive at airports and multiplexes than in a retail shop,even though they cost a similar amount to producers".Is this scenario realistically feasible?Which market structure(s) do you think this is commonly observed?How would you explain the producer behaviour in such markets?Logically analyze your argument and draw graphs if necessary.

Answer 1

This scenario is realistically feasible. Such situation is commonly observed in monopolistically competitive market. There are few producers, so they can set the price above the competitive level and sell lower quantity in such markets.