Meaning of Monopolistic competition, Features of Monopolistic competition, Short run loss, Conclusion, type of market structure, Monopolistic firms have short run loss

1. Economics Presentation
RINSHI SINGH
DM17D02
PGDM 4
MONOPOLISTIC COMPETITION : SHORT-RUN LOSS

2. Monopolistic Competition
 Monopolistic competition is a type of imperfect competition such that many producers sell
products that are differentiated from one another as goods but not perfect substitutes.
 If one firm raises its price too high, many of its customers will switch to products made by other
firms.
 This elasticity of demand makes it similar to pure competition where elasticity is perfect.
 Demand is not perfectly elastic because a monopolistic competitor has fewer rivals then would
be the case for perfect competition, and because the products are differentiated to some degree,
so they are not perfect substitutes.

3. Types of Market Structures
PERFECT MONOPOLISTIC MONOPOLY
Number of Sellers Large(30+) Many(10-30) One
Free entry/exit Un-restricted Un-restricted Restricted
Products firm sell Identical Differentiated Unique
Market power? None Yes Yes
Demand Curve Horizontal Down-ward Sloping Down-ward Sloping

4. Characteristics and Examples
 Characteristics:
 Product Differentiation
 No Inter-dependence
 Free entry and exit
 Incurrence of selling cost
 Examples:
 Apartments
 Books
 Bottled water
 Clothing
 Restaurants
 Hotels and pubs

5. Monopolistically Competitive Firm with
Losses in the Short Run
 In a monopolistic firm the profit is maximum when Marginal Revenue equals Marginal Cost.
 If average total cost is below the market price, then the firm will earn an economic profit.
 If the average total cost is above the market price, then the firm will incur losses.

6. LOSS
MC
AC
AR
MR
MR=MC
PRICE
QUANTITY
PRICE,COST
COST

7. Conclusion
 Since the cost is above the profit , it shows loss.
 Since the exit barrier is low for the firms, after a certain time some firms would leave the market
due to the high loss.
 Since their would be a decrease in the number of the competitors, there would be an increase in
the market share of the remaining customers after a certain time.
 Thus reaching a stable equilibrium i.e. Normal profit.

8. THANKYOU