Question

Titleist has an advertising slogan: "the #1 ball in golf." Consumers can also buy generic golf balls. The manufacturers of generic golf balls do not engage in any advertising. Assume that the average total coast of producing Titleist and generic golf balls is the same. a. Create a graph showing the price and the markup for Titleist. b. In a separate graph, show the price and output for the generic firms. c. Who has a stronger incentive to maintain strict quality control in the productition process - Titleist or the generic firms? Why? Chapter 12 Study Problems PG 389 question 8 Principles of Microeconomics 2E Dirk Mateer Lee Coppock

Answer 1

Advertising creates a monopoly kind of market for Titleist as there is no other firm who competes with them and they have created a market for themselves and hence can enjoy a higher price in the market as shown in the graph. Generic firms are competitive in nature and hence the price will be equal to marginal cost because of which quantity of generic golf balls will be more than that of titleist balls.

c. Titleist has a stronger incentive to maintain quality control in the production process because they have invested money in the advertisement and hence have to deliver what it claims. Also, to make sure that they enjoy their monopoly power in the market, they have to deliver the best quality.