DIPLOMA IN BUSINESS STUDIES

ABBE3033 BUSINESS ECONOMICS

TUTORIAL 5: Monopolistic Competition

Question 1

(January 2012/13)
(a) Many modern ‘kopitiam’ food outlets have been started in the Klang Valley. Besides the
well-known kopitiam outlets such as Old Town and Pappa Rich, new ones are still being
started. Each one claims that they offering a product that is different.
(i) Identify the type of market structure that the kopitiam outlets are operating in.
(2 marks)
(ii) Examine the TWO (2) types of externalities that will arise because of the new
entrants to the market. (6 marks)

(September 2016/17)

(b) Discuss any TWO (2) advantages and TWO (2) disadvantages of using advertising in
monopolistic competitive market. (8 marks)

Question 2 (Jan/Feb 09/10)

(a) Compare and contrast a monopolist and a monopolistic competitive firm. (10 marks)

(b) How might advertising reduce economic well-being? How might advertising increase
economic well-being? (8 marks)

Question 3 ( Jan 08/09)

(a) Using TWO (2) diagrams, explain the differences between a monopolistic competitive
market and a perfectly competitive market in terms of productive and allocative efficiency.
(8 marks)

(b) Distinguish between ‘product variety externality’ and ‘business stealing externality’ in a
monopolistic competitive market. (4 marks)

Question 4

(April 04/05 and Jan 05/06)

(a) Compare and contrast a perfectly competitive firm and a monopolistically competitive firm.
(8 marks)

(b) Explain TWO (2) benefits that might arise from the existence of brand names. (4 marks)

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Question 5 (August 2013/14)

Consumers’ Attitude Towards ‘Mamak’ Food in Malaysia

In Malaysia, the term ‘Mamak’ refers to Tamil Muslims who generally are the owners of such
restaurants. ‘Mamak’ restaurants are popular due to variety food and beverages they serve. These
restaurants usually operate 24 hours a day, 7 days a week. People of all races, religions and ages
frequently dine at ‘Mamak’ restaurants to meet up with friends or family or are just there to watch
football games on a big flat screen television with colleagues while enjoying the very popular glass of
‘Teh Tarik’ (a beverage) and eating ‘Roti Canai’ (most famous ‘Mamak’ food). They are able to
provide a variety of food and beverages that are available from breakfast to supper hence are able to
fulfil the needs and wants of the customers.

The restaurant industry is a highly competitive business environment. Many food operators compete
among themselves in attracting future customers and retaining existing customers to their restaurant.
This can be seen where most of the ‘Mamak’ food operators will compete to open their branch or
outlet in any new township and sell all types of food to supply their target market.

‘Mamak’ restaurants do play an important role in the food service industry in Malaysia as it
contribution in assisting the country’s economic growth. Many customers choose this type of
restaurant when dining out. Most of the customers dining in ‘Mamak’ restaurants due to their friendly
service as some of the waiters even can remember the repeat customers’ favourites drink or food
when dining in their restaurant. This is one example of personalised service, where most of the service
industries practice it in their daily operation. This shows that the element of assurance (knowledge
and courtesy of employees and their ability to inspire trust and confidence) leads to the success of
‘Mamak’ restaurants. ‘Mamak’ restaurants also further promotes Malaysia as an interesting and
colourful food tourism destination in the world.

Source: Adapted and modified from Abu Bakar, K & Farinda, AG 2012, ‘Consumers’ attitude
towards ‘Mamak’ food in Malaysia’, in Proceedings of the Third International Conference on
Business and Economic Research (3rd ICBER 2012), 12 - 13 March 2012, Golden Flower Hotel,
Bandung, Indonesia, pp. 1304-1316.

Required:

(a) Based on the case study above, identify the market structure of ‘Mamak’ restaurants. Briefly
describe any TWO (2) characteristics of this market structure. (6 marks)

- Monopolistic Competition.

(b) Based on the case study above, identify any TWO (2) positive impacts of ‘Mamak’
restaurants in Malaysia. (4 marks)

(c) Discuss the TWO (2) types of externalities which emerge when a new firm with a new
product enters the market. (6 marks)

(d) Explain briefly any TWO (2) benefits that might arise from the existence of brand names in
this market structure. (4 marks)
[Total: 20 marks]

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