Author: luna
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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 cost structure depicted by the SRAC and the LMC curves and faced with the demand curve dd’, will set the price PM which…
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Monopolistic Competition (with Assumptions)
Monopolistic Competition (with Assumptions) Up to the early 1920s the classical theory of price included two main models, pure competition and monopoly. Duopoly models were considered as intellectual exercises rather than real-world situations. The general model of economic behaviour from Marshall to Knight was pure competition. In the late 1920s economists became increasingly dissatisfied with…
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Product Differentiation and the Demand Curve
Product differentiation as the basis for establishing a downward-falling demand curve was first introduced in economic theory by Sraffa. Yet it was Chamberlin who elaborated the implication of product differentiation for the pricing and output decisions as well as for the selling strategy of the firm. Chamberlin suggested that the demand is determined not only…
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Main Features of Monopolistic Competition The main features of monopolistic competition are as under: 1. Large Number of Buyers and Sellers:
Main Features of Monopolistic Competition The main features of monopolistic competition are as under: 1. Large Number of Buyers and Sellers: There are large number of firms but not as large as under perfect competition. That means each firm can control its price-output policy to some extent. It is assumed that any price-output policy of…
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Price-Output Equilibrium under Monopolistic Competition: Equilibrium in Short-Run and Long Run!
Under monopolistic competition, organizations need to make optimum adjustments in the prices and output sold to attain equilibrium. Apart from this, under monopolistic competition, organizations also need to pay attention toward the design of the product and the way the product is promoted in the market. Moreover, an organization under monopolistic competition is not…
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Demand and Marginal Revenue Curves (With Diagram)
In monopolistic competition, the demand curve is relatively elastic, due to availability of close substitutes in monopolistic competition have limited power to decide and regulate the prices of their products. This is because if sellers increase the prices of products, customers may switch to nearest competitors to avail the close substitutes. Due to large number…
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Monopoly Equilibrium in Case of Zero Marginal Cost:
In certain situations, it may happen that MC is zero, which implies that the cost of production is zero. For example, cost of production of spring water is zero. However, the monopolist will set its price to earn profit. Figure-12 shows the monopoly equilibrium when MC is zero: In Figure-12, AR is the average…
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Determining Price and Output under Monopoly: Suppose demand function for monopoly is Q = 200-0.4Q
ADVERTISEMENTS: Price function is P= 1000-10Q Cost function is TC= 100 + 40Q + Q2 Maximum profit is achieved where MR=MC To find MR, TR is derived. TR= (1000-10Q) Q = 1000Q-10Q2 MR = ∆TR/∆Q= 1000 – 20Q ADVERTISEMENTS: MC = ∆TC/∆Q = 40 + 2Q MR = MC 1000 – 20Q = 40…
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Price and Output Determination under Monopoly
Monopoly refers to a market structure in which there is a single producer or seller that has a control on the entire market. This single seller deals in the products that have no close substitutes and has a direct demand, supply, and prices of a product. Therefore, in monopoly, there is no distinction between an…
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simplify product group analysis, Chamberlin has given two assumptions, which are as follows:
i. He assumed that the demand and cost curves of all products forming the group are the same or uniform. This assumption is termed as uniformity assumption. According to this assumption, the preferences of consumers are evenly distributed and the difference in preferences is not that much to give rise to variation in cost.…