Author: luna
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In this essay we will discuss about Monopolistic Competition. After reading this essay you will learn about: 1. Meaning of Monopolistic Competition 2. Price Determination of a Firm under Monopolistic Competition 3. Chamberlin’s Group Equilibrium 4. Theory of Excess Capacity 5. Selling Costs 6. Wastes of Monopolistic Competition.
Essay # 1. Meaning of Monopolistic Competition: Monopolistic competition refers to a market situation where there are many firms selling a differentiated product. “There is competition which is keen, though not perfect, among many firms making very similar products.” No firm can have any perceptible influence on the price-output policies of the other sellers nor…
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Concepts of Proportional and Perceived Demand Curve:
We have said that monopolistic competition is an amalgam of perfect competition and monopoly. A monopolistically competitive firm does not face a horizontal demand curve. On the other hand, a competitive firm experiences horizontal demand curve since products by all firms are homogeneous. Product differentiation, however, is one of the chief assumptions of monopolistic competition.…
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Notes on Monopolistic Competition: Meaning and Characteristics Monopolistic Competition: Meaning and Characteristics!
Meaning Monopolistic Competition: The two important subdivisions of imperfect competition are monopolistic competition and oligopoly. Most of the economic situations “are composites of both perfect competition and monopoly”. Chamberlin’s monopolistic competition is an amalgam or an admixture of perfect competition and monopoly. Thus, monopolistic competition has elements of both perfect competition and monopoly. That is…
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Chamberlin’s Model of Monopolistic Competition
Chamberlin’s theory has been attacked on several grounds. Some of the criticisms are valid while others do not stand up to a closer examination. The assumptions of product differentiation and of independent action by the competitors are inconsistent. It is a fact that firms are continuously aware of the actions of competitors whose products are…
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Monopolistic Competition with Pure Competition (Comparison)
We said that the long-run equilibrium of the firm is defined by the point of tangency of the demand curve to the LAC curve. At this point MC = MR and AC = P, but P > MC, while in pure competition we have the long-run equilibrium condition MC = MR = AC = P.…
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Models of Equilibrium of the Firm (With Diagram)
Some of the most important model of equilibrium of the firm are as follows: Model 1: equilibrium with new firms entering the industry: In this model it is assumed that each firm is in short-run equilibrium, maximizing its profits at abnormally high levels. Such a situation is shown in figure 8.2. The firm, having the…
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A comparative analysis of monopoly and monopolistic competition has been made on the following aspects: 1. Nature of Product:
A comparative analysis of monopoly and monopolistic competition has been made on the following aspects: 1. Nature of Product: Under monopoly, product produced may or may not be homogeneous. But under monopolistic competition, there is always product differentiation. 2. Number of Buyers and Sellers: Under monopoly, there are many buyers but only one seller. On…
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“Excess capacity permits more firms to exit (i.e., it leads to overcrowding) in monopolistically competitive markets as compared with perfect competition. Consumers, however, seem to prefer that firms selling some services operate with same unused capacity (i.e., they are willing to pay a slightly higher price…) so as to avoid waiting in long lines.”
Equilibrium of a Firm under Monopolistic Competition Let us learn about the short run and long run equilibrium of a firm under monopolistic competition. Short Run Equilibrium: Equilibrium of a firm under monopolistic competition is often couched in terms of short period and long period. In the short run, Chamberlin’s model of monopolistic competition comes…
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Group Equilibrium in Monopolistic Competition:
ADVERTISEMENTS: Under monopolistic competition, the word ‘group’ is used for industry. There is a difference between an industry and a group. An industry generally consists of firms which produce homogeneous product, whereas a group is composed of firms which produce a differentiated product. Thus group consists of a number of firms producing close substitutes. For…
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Equilibrium Price and Output under Monopolistic Competition: Short Run Equilibrium:
According to Prof. Chamberlin, the firm under monopolistic competition has to make a wider range of decisions than under perfect competition. The firm may vary its price and with it, its sales and output; it may vary the quality of its product and it may engage in sales-promotion activities such as advertisement, publicity and propaganda,…