Monopolistic Competition

Monopolistic Competition

 In a monopolistic competitive market, numerous suppliers are offering distinctive but similar products. There is a lot of information for the consumer to absorb and evaluate to make the best decisions. Advertising drives up costs, but it's necessary to stand out.

Examples: apartments, books, canned water clothing monopolistic competition is a blend of monopoly and perfect competition. Monopolistic competition is easily obtained in the real world. Monopolistic competition is a market situation in which a large number of firms produce differentiated products yet closed substitutes and there is free entry and exit of farms.

In general, the market structure with mixed features of monopoly and perfect competition is Tom days monopolistic competition. This market structure was developed by E Chamberlain and John Robinson.

The main features of monopolistic competitions are

Product differentiation/Each business creates things that are comparable but different.

A large number of sellers/ the existence of numerous businesses

Free entry and exit/ Freedom of entry and departure of firms/industry

Strategy strategies to make their products unique

Heavy investment in advertisements 

A lack of price competition

Perfect market and technological knowledge

Nature of Demand Curve  of Monopolistic Competition

A firm with some market power has a downward-sloping demand curve, which is a sign of monopolistic competition. Since each company develops a unique product, market power is derived from product differentiation. Since there are numerous close alternatives for each thing, market power is constrained. If prices are raised too much, customers will switch to rivals' goods.

The demand curve or average revenue in monopolistic competition has characteristics that fall between those of perfect competition and monopoly, or it is of a reasonably elastic nature.

Monopolistic competition is distinguished by the differentiation of the product, which combines monopoly and competition. Product differentiation may be of different types and qualities. Branding, packaging, quality, customer service, extra features, etc. are all possible factors in product differentiation. While closely related, the results of different forms are not uniform but distinct. Product diversification does not mean that different enterprises were created entirely differently; rather, they are slightly different and are close alternatives to one another. The more differentiation there is, the more monopoly there is.

Short-run Profit Maximization in Monopolistic Competition

Create the Q at which MR equals MC.

Due to the presence of close substitutes, the downward-sloping demand curve that the firm is experiencing is relatively elastic. The short-run equilibrium may be seen in the left-hand panel and resembles the monopoly graph quite closely. The only distinction is that the demand is flat or moderately elastic for monopolistically competitive firms. Otherwise, a monopoly is the same as the short-term profit-maximizing approach.

Zero Profit in the Long run

Up until profits are equal to zero and total revenues are equal to total costs, new businesses can enter the market. At the ideal long-term quantity, the demand curve is therefore tangent to the average cost curve. Some businesses leave the market if there is a loss, whereas the surviving businesses eventually turn a profit.

Conclusion:

In general, economists have discovered that when numerous businesses compete with one another in a particular industry, low levels of competition typically exist and lead to cheaper costs and higher-quality products. The ease with which new businesses can enter an industry and the ease with which existing businesses can improve their profits, leading to higher wealth creation for the economy as a whole, are both demonstrated by comparing broad monopolistic competition to pure monopolistic competition. In order to ensure that everyone enjoys cheaper costs and higher-quality goods, economists advise governments to enact regulations that encourage competitive marketplaces.