Corporate Competition : An Organization Essay

1123 Words Nov 28th, 2016 5 Pages
The number of companies which operate under monopolistic competition is very large. The low barriers to entry and the high range of different goods and services provided make running a business in monopolistic competition attractive for entrepreneurs. Restaurants, confectionary, barbershops and hotels all these businesses operate in the same market structure. The most typical example of a such company is a coffee shop. According to The Telegraph, the number of coffee shop outlets reached 20 thousand in the UK in 2015, and more than 8 thousand outlets belonged to sole-traders. It is obvious that competition in this market niche is really high, and even non-price competition occur to attract customers. What strategies do help companies to make an economic profit in the short-run under such conditions and can they make it in the long-run perspective?

First of all, we need to look at Figure 1 to understand the company 's aims to make profits in the short-run. A firm wants to produce quantity (Q1) which will corresponds to the equilibrium point where marginal revenue (MR) is equal to marginal cost (MC), otherwise, a firm will make a loss or a profit will not be maximased. In this case, the price (P) corresponds to the level of demand (D) above the Q1 and average cost (AC) above the Q1. So the firm 's economic profit will be equal to (P-AC) times Q1. Therefore, a firm should take a strategy under the specific elasticity and to ensure that the price which is related to the…

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