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Short-run equilibrium of the company under monopolistic competition. The company maximises its profits and produces a quantity where the company's marginal revenue (MR) is equal to its marginal cost (MC). The company is able to collect a price based on the average revenue (AR) curve.
Further, economic equilibrium can correspond with monopoly, where the monopolistic firm maintains an artificial shortage to prop up prices and to maximize profits. Finally, Keynesian macroeconomics points to underemployment equilibrium , where a surplus of labor (i.e., cyclical unemployment ) co-exists for a long time with a shortage of ...
[1] [4] [2] [5] Because of this tight competition, competing firms in a market each have their own horizontal demand curve that is fixed at a single price established by market equilibrium for the entire industry as a whole. [1] [4] [5] Each firm in a competitive market has buyers for its product as long as the firm charges "no more than" the ...
The main characteristics of monopolistic competition include: Differentiated products; Many sellers and buyers; Free entry and exit; Firms within this market structure are not price takers and compete based on product price, quality and through marketing efforts, setting individual prices for the unique differentiated products. [18]
Monopolistic Competition: There are a large number of enterprises, there are no restrictions on entering and exiting the market, and they sell different products of the same kind, and enterprises have a certain ability to control prices. [ 14 ]
Monopolistic competition exists in-between monopoly and perfect competition, as it combines elements of both market structures. Within monopolistic competition market structures all firms have the same, relatively low degree of market power; they are all price makers, rather than price takers.
Unlike perfect competition where firms can freely enter and exit the market, it is not the case for monopolistic competition. For a monopoly to exist, there must be high barriers to entry for new firms. Barriers to entry must be strong enough to discourage potential competitors from entering.
A monopolistic firm can have two business decisions: sell less output at a higher price or sell more output at a lower price. There are no close substitutes for the products of a monopolistic firm. Otherwise, other firms can produce substitutes to replace the monopoly firm's products, and a monopolistic firm cannot become the only supplier in ...