This document discusses price determination under monopolistic competition. It describes monopolistic competition as having many small sellers selling differentiated but close substitute products. It states that under monopolistic competition, a firm maximizes profits when marginal cost equals marginal revenue. The document also discusses selling costs, product differentiation, and how older firms have less elastic demand curves under monopolistic competition.

1. Price Determination Under
Monopolistic Competition
JITHIN K THOMAS
Berchmans Institute of Management
Studies

2. Monopolistic Competition
• Monopolistic Competition is found in the
industry where there is a large number of
small sellers selling differentiated but close
substitute products.

3. Monopolistic Competition
1. Large number od buyers and sellers
2. Free entry and exit of firm
3. Product differentiation
4. Selling cost
5. Lack of perfect knowledge
6. Less mobility
7. More elastic demand
8. Non price competition
9. Absence of collective action
10. Price policy of a firm

4. Equilibrium price and Output under
Monopolistic Competition
• Under Monopolistic Competition firm makes
maximum profits when
– MC = MR
– MC must cut MR from below
• Older the firm less elastic demand

5. • Super normal profit
– Other firms are not able to produce closely
competitive substitutes
• Normal Profit
• Sustaining Losses

6. Selling Costs
• Selling cost may be defined as the costs
necessary to persuade a buyer to buy one
product rather than another or but from one
seller rather then another.
• Assumption
– Buyer do not have perfect knowledge
– Buyers demand and taste can be changed

7. Product Differentiation
1. Due to Product differentiation goods are not
homogeneous
2. Product differentiation aims at to control price
and increase profits
3. Product differentiation satisfies peoples urge for
variety
4. Product differentiation may be real or artificial
5. Product differentiation provide the producer
name and brand legally patented.

8. Product differentiation