(prelude)
In 2004 the Chinese government approved a deal with BAT (formerly British American Tobacco) to enable them to become the first foreign manufacturer of cigarettes in China for at least 50 years. BAT said that it would invest $1.5 million in China and that it would take about two years before the factories were running efficiently. It is estimated that China has 300 million smokers and is the world’s most important cigarette market.
(a)[13]
Cigarette manufacture operates in an imperfect market. Distinguish between the imperfect market forms of monopolistic competition and oligopoly.
(b)[12]
Discuss how BAT’s investment may be likely to affect its profits in the short run and the long run.