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  One of the important wastes of monopolistic competition is the incurring of expenditure on competitive advertisement by firms. Excess advertisement adds to costs and prices. Expenditure on packing, colour, flavour, etc. and on media like TV, radio, cinema, newspapers, etc. create unnecessary product differentiation. As a result, irrational preference for certain brands of products…

Some economists are of the opinion that a firm under monopolistic competition produces, in equilibrium, less than the ‘ideal’ output, and therefore, it suffers from excess capacity which amounts to wastage. Before going into the details of the problem, let us first see what is meant by ideal output. According to economists like Marshall, Kahn,…

From the point of view of economic efficiency or welfare as compared to perfect competition, monopolistic competition tends to reduce economic efficiency through a number of wastes such as unutilised or excess capacity, malallocation of resources, advertising, product differentiation, etc. They are also called wastes of competition but it is more appropriate to characterise them…

The purpose of selling costs is to influence the demand curve for the product of a firm or group. A producer incurs selling costs in order to push up his sales. Therefore, all selling costs tend to shift an individual seller’s demand curve to the right. The question of a demand curve shifting to the…

The curve of selling costs is a tool of economic analysis forged by Prof. Chamberlain. It is a curve of average selling cost per unit of product. It is akin to the average cost curve and like the latter is U-shaped. Under the influence of the law of variable proportions, the curve of selling costs…

The doctrine of excess (or unutilized) capacity is associated with monopolistic competition in the long-run and is defined as “the difference between ideal (optimum) output and the output actually attained in the long-run.” Under perfect competition, however, the demand curve (AR) is tangential to the long-run average cost curve (LAC) at its minimum point and conditions…

Group equilibrium relates to the equilibrium of the “industry” under a monopolistic competitive market. The word “industry” refers to all the firms producing a homogeneous product. But under monopolistic competition the product is differentiated. ADVERTISEMENTS: Therefore, there is no “industry” but only a “group” of firms producing a similar product. Each firm produces a distinct product and…

The equilibrium of the firm under monopolistic competition follows the usual analysis in the short-run and long-run. (A) Short-Run Equilibrium Assumptions: The short-run analysis of the firm under monopolistic competition is based on the following assumptions: (1) The number of sellers is large and they act independently of each other. Each is a monopolist in…

We have to explain how the firm and the group under monopolistic competition reach the position of long-run equilibrium and what are the characteristic features of this equilibrium. But before doing this, let us remember that the short run equilibrium of a firm under monopo­listic competition occurs when the price-output combination corresponding to the perceived…

  Since late 1920s and early 1930s, economists are aware of the limitations of competition and monopoly analyses, and from that time on, they turned their attention to the middle ground between monopoly and perfect competition. But the situations that did not seem to fit the models of monopoly or perfect competition, could be explained…