Case Study Of Monopolistic Competition

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 …show more content…
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 specific level of the demand is higher than AC at least till MR is equal to AC. Otherwise, a firm will make a loss (Figure 2). From the graph, we are able to see that demand curve is lower than AC curve. So at the point when MR equals MC, AC is higher than price and firm is making a loss of (AC-P) times Q*. As a result, a firm will exit the …show more content…
Different sales, deals or a special researches to know the customer 's taste all these will help the company with understanding and manipulating of a potential customer 's preferences. For example Nero has the loyalty cards which allow their customers to have a free cup of coffee if they have already bought the specific amount of hot drinks in Nero 's shops. The Costa has the Costa Coffee Club cards. When their customers buy something using this card, they earn some points, which can be spent on Costa 's products. Also a firm should start developing branding strategy to become well-known and popular, which might help with the company 's profit in the long-run. How practise shows us, a customer who has never been in a particular town or city will prefer to go to the Starbucks or Costa rather than to a local coffee shops. Beсause customers already has the knowledge about these coffee companies and about their products compare to zero knowledge about the local coffee