Category: Uncategorized
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The following points highlight the effects of three types of taxes on the equilibrium of the monopolist. Effect of Taxes on the Equilibrium of the Monopolist Type # 1. Imposition of a Lump-Sum tax:
In this case we need not distinguish between the short-run and the long-run because, in general, the monopolist always realizes some excess profits — both in the short-run and in the long-run. Under these conditions, the imposition of a lump-sum tax will’ reduce the excess profits of the monopolist because it will increase his total…
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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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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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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…