Despite this, the slope of the demand curve is determined by the general level of the market price for the differentiated product. This explains the essential nature of monopolistic competition. This type of market condition ordinarily has high barriers to entry, thereby locking other players out of it and making those who are daring enough to venture in the same market pay a huge price for their bravery (Mukherjee 2002). Dwivedi, D 2002, Microeconomics: theory and applications, Pearson Education India, New Delhi. Some of the most common categorizations for market differentiation include geographical area, time, and legal framework (Dwivedi 2002). Skeath, S., Velenchik, A., Nichols, L. & Case, K. (1992). Using this analogy as the main point of comparison between a monopoly and a monopolistic competition, we find that the main differentiating factor in monopolistic competition is its subtle features of perfect competition. Under monopolistic competition products of different firm are neither completely homogeneous as in perfect competition nor entirely distinct as in monopoly. The corresponding MC curves to APC and AC would be derived in the same manner and bear the same relation to their respective average cost curves. But instead of increas­ing its quantity demanded on the dd curve, each firm moves along the DD curve. This shows that there is allocative efficiency in the market. Essay # 1. The source of an MC firm’s market power is not barriers to entry since they are low. As the cost curves will not shift as entry occurs, each shift to the left of the demand curve will be followed by a price adjustment as the firm reaches a new equilibrium position, making the new marginal revenue on the shifted MR curve equal to its marginal cost.

"Monopolistic competition as a market structure." Monopolies only have one firm in the market, while a monopolistic competition has multiple firms. That is why; monopolistic competition is sometimes described as “Polypoly.”.

Any further expenditure on advertisement will lead to diminution of profits. The firm can also lower prices without triggering a potentially ruinous price war with competitors. Boosta Ltd - 10 Kyriakou Matsi, Liliana building, office 203, 1082, Nicosia, Cyprus. Pricing decisions tend to be the most important decisions made by any firm in any kind of market structure. Their demand curves are also curved, and firms often refrain from reacting to the market actions of a rival firm because there are multiple players in the market (Cowen & Tabarrok 2012). They are developed to create a defendable position in the long-run, outperforming competition and establish a competitive advantage. In Figure 12, APC is the production cost curve and each time when Rs.1000 are spent on advertising, the average total cost curve becomes AC1 and AC2. They are no other competitors in the market therefore the goods will definitely be sold.

In the long run however, more firms enter the market and the company’s product no longer enjoys a differentiated advantage. Economic liberalization policies that have spread throughout most economies have seen the decline of monopolies (Dwivedi 2002). The firms will, therefore, be of less than the optimum size even when they are earning normal profits. Since the demand curve (AR) of a monopolistic competitive firm is downward sloping, its tangency point with the LAC curve will always occur to the left of its minimum point. It is akin to the average cost curve and like the latter is U-shaped. This is the ideal or optimum output which firms produce in the long-run. Regarding dd as its own demand curve each firm applies a price cut for the purpose of increasing its sales and profits on the assumption that other firms will not react to its action. The firm is able to collect a price based on the average revenue (AR) curve. It is difficult to answer this question on a priori grounds. Cross elasticity of demand between such commodities is very high. While monopolistically competitive firms are inefficient, it is usually the case that the costs of regulating prices for every product that is sold in monopolistic competition far exceed the benefits of such regulation. This helps in helping to avoid wastage of resources. In a monopoly market, the consumer is faced with a single brand, making information gathering relatively inexpensive. Spence, M. (1976). At OQ output they are BA and even at OM level of output, they are the same as before DC (=BA), so is the average total cost MC (=QA). He does not draw the MR curves corresponding to these demand curves and the LMC curve to the LAC curve to simplify the analysis.

The process will continue until the demand curve becomes tangent to the average-cost curve and the excess profits are wiped out. Therefore, the products that are put into the market by these firms are near proxies and are very comparable but are nevertheless not perfect substitutes (Ison & Wall, 2006). They are intended to raise the demand for one product rather than another at any given price. TR = TC – Like perfect competition, monopolistic competition leads to an equal income distribution.Similarities with Monopoly: -The main similarity between monopolistic competition and monopoly is that:-* P > MC – Like monopoly, monopolistic competition is …

It is closer in spirit to a perfectly competitive market, but because of product differentiation, firms have some control over price. Serrano, R & Feldman, A 2012, A short course in intermediate microeconomics with calculus, Cambridge University Press, Cambridge. Therefore, in the short-run, both sets of firms could share many similarities, but in the end, these similarities fade away because of market conditions.



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