Question 1 Report
Read the information below about three independent gyms in one district. Each gym offers different classes, equipment and membership packages. When one gym reduces its monthly fee, the other two retain their fees but advertise free trial sessions.
(a) Which market structure is most likely shown by the gyms? [1]
(b) Explain why the gyms may choose advertising rather than immediately matching the lower price. [1]
(a) The gyms are most likely in monopolistic competition. [1] There are several independent firms and their classes, equipment and packages are differentiated.
(b) Advertising can differentiate a gym’s service and retain customers without reducing the revenue earned per membership. [1] Matching the lower monthly fee would lower the price paid by all members who remain.
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