Imperfect Competition: Context-Rich Problem

Joann Bangs
St. Catherine University
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This material is replicated on a number of sites as part of the SERC Pedagogic Service Project
Initial Publication Date: November 13, 2009


In this context-rich problem, students are asked to develop a scenario where two businesses would be likely to engage in cuthroat competition with each other.

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Learning Goals

Students will be able to apply economic theory on imperfect competition to real world settings.

Context for Use

This activity is appropriate for a principles level microeconomics course. It could be completed by students in small groups or individually. If you plan to grade the written reports from the students, a smaller class is more appropriate. However, you could modify the activity for larger classes by instead discussing the reports in class, or having small groups compare selected reports.

Description and Teaching Materials

Suppose your neighbor is writing a novel. The two main characters in her novel run competing restaurants in a small town. They own the only two restaurants in this small town and are engaged in cutthroat competition with each other. Because your neighbor knows you are taking economics classes, she wants your help. What advice do you have to give your neighbor to make the competition in her novel both interesting and plausible? Prepare a one page plot outline to give to your neighbor.

The attached file contains the text of the context-rich problem. It includes instructions for students to complete a one-page written report. If you wish to have students discuss the context-rich problem in class, that activity can be completed in 5-10 minutes.
Imperfect Competition CRP Handout (Rich Text File 37kB Mar24 09)

Teaching Notes and Tips

Students will need to be familiar with industry characteristics that tend to make either competition or cooperation the more likely outcome.


To complete the activity students must complete a one-page report. These reports can be graded to assess the students' understanding of the concepts.

References and Resources