3. Monopolistic Competition
Monopolistic Competition is a market situation
in which the elements of both monopoly and
competition are present. It may be defined as a
market situation in which a large number of
buyers and sellers deal with a differentiated
product
4. Features
There are large number of buyers and sellers
in the market.
There is free entry and exit out of the industry
or group in the long run.
There is product differentiation. Each firm
produces a particular brand or variety of the
same product.
The firm incurs advertisement and selling
cost.
5. Short Run Equilibrium of the Firm
Conditions
Short run marginal cost curve should
intersect the new perceived marginal revenue
curve. SMC=MR
The SMC curve should intersect the MR curve
from below.
6. In the short run, a firm may earn economic
profit or incur losses. If it earns profit, other
firms will enter the group. As a result, the
market share of each firm decreases. The
existing firms will realise that they are not
able to sell the short run equilibrium output at
the old price. They adjust their prices and
output till they reach an output level where
the economic profit is zero.
7. In the short run, if firms incur losses, some of
them would exit the group. The existing firms
will perceive a high price and larger output
than before. This process will continue until
an output level is reached where there is
absence of losses.
8.
9.
10. Long Run Equilibrium of the Firm
In the long run, there is free entry into and
exit out of the group. The long run
equilibrium requires the condition ,
P=LAC
11.
12. Selling Cost
Selling costs refer to those expenses which
are incurred for popularizing the
differentiated product and increasing the
demand for it. ... Such selling costs may be
incurred in any form such as advertising, sales
promotion, samples to potential customers
etc.
13. Monopsony
In economics, a monopsony is a market structure
in which a single buyer substantially controls the
market as the major purchaser of goods and
services offered by many would-be
sellers. Most examples of monopsony have to
do with the purchase of workers' time in the
labour market, where a firm is the sole purchaser
of a certain kind of labour. ... The classic example
of a monopsony is a company coal town, where
the coal company acts the sole employer and
therefore the sole purchaser of labour in the
town.
14. Duopoly
A duopoly is a type of oligopoly where two
firms have dominant or exclusive control over
a market. It is the most commonly studied
form of oligopoly due to its simplicity.
Duopolies sell to consumers in a competitive
market where the choice of an individual
consumer can not affect the firm.
