Essay on Monopolistic Competition

2932 Words Apr 4th, 2012 12 Pages
CRAM Exclusive
Essay Sample
INTRODUCTION Pure monopoly and perfect competition are two extreme cases of market structure. In reality, there are markets having large number of producers competing with each other in order to sell their product in the market. Thus, there is monopoly on the one hand and perfect competition, on the other hand. Such a mixture of monopoly and perfect competition is called monopolistic competition. It is a case of imperfect competition. The model of monopolistic competition describes a

middle of document…

This means in the long run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.
Monopolistically competitive markets exhibit the following characteristics:
1. Each firm makes independent decisions about price and output, based on its product, its market, and its costs of production.
2. Knowledge is widely spread between participants, but it is unlikely to be perfect. For example, diners can review all the menus available from restaurants in a town, before they make their choice. Once inside the restaurant, they can view the menu again, before ordering. However, they cannot fully appreciate the restaurant or the meal until after they have dined.
3. The entrepreneur has a more significant role than in firms that are perfectly competitive because of the increased risks associated with decision making.
4. There is freedom to enter or leave the market, as there are no major barriers to entry or exit.
5. A central feature of monopolistic competition is that products are differentiated.
CRAM Exclusive
Monk79412Berry

Related Documents

  • Monopolistic Competition Essay

    sector. The latest mp3 player features huge storage capacity with both audio and video optioned. The presence of famous companies like Apple, Sony, Samsung, Moser Baer, SanDisk, etc. mp3 players aggravates the competition. There is large number of independent firms in the monopolistic competition. Some companies like Apple, Sony, Philips, Transcend, iball etc. have been entering in to the market with identical product line and to the existence of large number of firms. The product would bear slight

    Words: 987 - Pages: 4
  • Monopolistic Competition Essay

    The theory is that any action will have such a negligible effect on the overall market demand that an MC firm can act without fear of prompting heightened competition. In other words each firm feels free to set prices as if it were a monopoly rather than an oligopoly. Market power: MC firms have some degree of market power. Market power means that the firm has control over the terms and conditions of exchange. An MC firm can raise its prices without losing all its customers. The firm can also

    Words: 2487 - Pages: 10
  • Monopolistic Competition in the Retail Industry Essay examples

    differentiation. The four common types of product differentiation are physical product differiation, marketing differiation, differiation through distribution, and human capital distribution. In monopolistic competition, companies use color, size, accessibility, performance, and features to differ their product from the competition. Through marketing differentiation, companies change the packaging and labels on their products to make them more appealing to customers. Differentiation through distribution is made

    Words: 979 - Pages: 4
  • Monopolistic Competition Essay example

    • No Collusion: A relatively large number of firms will not combine to restrict outputs and set prices. With so many firms, collusion is almost impossible because it is too easy for one firm to cheat and charge the lower price. • Independent Action: Each firm is independent and can determine its pricing policy without considering its rivals. eg. A firm could moderately increase its sales by cutting its prices, but that would have no significant effect on its competitors sales. Differentiated

    Words: 826 - Pages: 4
  • Monopolistic Competition Essay

    The theater can continue to produce and sale the unit or theater tickets or unit of tickets as long as marginal revenue is greater than or equal to its marginal cost, which are determined by demand and supply, market structure and the objectives of the firms managers. Theaters have pricing strategies for its particular consumers such as military, senior citizens and students. Theaters offer discounts to individuals who can show a student, military, or AARP identification card because it lures those

    Words: 867 - Pages: 4
  • Essay on What Is a Monopolistic Competition

    Brand names, in fact, are a common way to create the perception of differences among products, even if none physically exist. For example, Coca Cola is chemically identically to Tesco Brand Cola . However, due to years of intense Pepsi advertising that has burned the Pepsi brand name into buyers brains, most are absolutely convinced that Pepsi is a better taste drinks . However, as far a demand is concerned, perceived differences work just as well as physical differences. It matters not whether

    Words: 2471 - Pages: 10
  • Monopolistic Behaviour of Banks Essay

    which can distort remarkably banks’ competition. Economic and financial theory gives conflicting sights on the need for and the results of regulations and supervision on bank entry. Some people argue that effective controlling of bank entry can support stability. Others argue that banks with monopolistic power have larger privilege, which promotes more careful risk-taking behaviour (Keeley, 1990). Others disagree, and support the beneficial effects of competition and the harmful results of regulated

    Words: 1392 - Pages: 6
  • Consider Singapore Retail Firms (Retailers) and Discuss If Oligopoly or Monopolistic Competition Best Explains These Retailers’ Market Behaviour.

    Secondly, oligopolies tend to prefer non-price competition like advertising, freebies and lucky draws, whereas monopolistic competitive firms are more likely to compete based on prices (and output). Due to their large scale, with massive iEOS running down along their LRAC, oligopolies are able to use huge, large scale, media-based, newspapers and multimedia advertising, where for example supermarkets like Giant often advertise in newspapers. On special occasions, they also have products sold at lower

    Words: 616 - Pages: 3
  • Competition Is Not Good For People Essay

    not pass and friends that came to Switzerland together stopped talking as they saw each other as competition. Confident students did not leave any hope to the students that lacked self-esteem and confidence. In communities, self-esteem and confidence are also linked to a person’s performance in sports. C W. Nevius’s “The Cost of High Stakes on Little League Games” essay suggests that competition is a product of parents, not children because parents are ego driven. While some sports have been

    Words: 1440 - Pages: 6
  • Essay on Competition in Mythology

    (Cartwright 2013) Sports today are very similar to those played in Ancient Egypt. Inscriptions on monuments depict that the Egyptians took much pleasure in sports and therefore competition. Egyptian sports were peaceful in nature, their intention was physical fitness, as well as pleasure and recreation. While competition may not be present in Egyptian sports, the fire inside the participants was there as it is in all of us, for leisure or not. The general population, including nobles participated

    Words: 2573 - Pages: 11