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MONOPOLISTIC COMPETITION
Presented byMiss Sanam Sattar
IntroductionMonopolistic 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.
CharacteristicsMany Sellers:
Many firms competing for the same number of customers
Product Differenciation:
Firms produce, similar but uniquely different products
Firms are not a price taker
Free Exit And Entry:
Free barriers to entry. The adjust accordingly until the economic profits of all firms equate to zero.
Extensive Knowledge Of Prices:
Extensive knowledge of prices to both buyers and sellers
Lack Of Perfect Knowledge:Buyers do not have perfect knowledge about
the market conditions. Pricing Decision: A firm under monopolistic
competition is neither a price- taker nor a price-maker.
Monopolistic competition in Short run And Long run
Presented by Tehmina Hazoor
Monopolistic competition in Short run
Short-run economic profits encourage new firms to enter the market. This: Increases the number of products offered. Reduces demand faced by firms already in the
market. Incumbent firms’ demand curves shift to the left. Demand for the incumbent firms’ products fall, and
their profits decline.
Figure 1 Monopolistic Competition in the Short Run
Copyright©2003 Southwestern/Thomson Learning
Quantity0
Price
Profit-maximizing
quantity
Price
Demand
MR
ATC
(a) Firm Makes Profit
Averagetotal cost
Profit
MC
Short-run economic losses encourage firms to exit the market. This: Decreases the number of products offered. Increases demand faced by the remaining firms. Shifts the remaining firms’ demand curves to the
right. Increases the remaining firms’ profits.
Figure 1 Monopolistic Competitors in the Short Run
Copyright©2003 Southwestern/Thomson Learning
Demand
Quantity0
Price
Price
Loss-minimizing
quantity
Averagetotal cost
(b) Firm Makes Losses
MR
LossesATC
MC
Monoplistic competition in long runFirms will enter and exit until the firms are
making exactly zero economic profits.
Figure 2 A Monopolistic Competitor in the Long Run
Copyright©2003 Southwestern/Thomson Learning
Quantity
Price
0
DemandMR
ATC
MC
Profit-maximizingquantity
P = ATC
Monopolistic competition vs Perfect Competition
Presented byNaseema Khan
Monopolistic competition vs Perfect CompetitionMonopolistic Competition
Perfect competitionLarge number of buyers
and large number of sellers
Products sell are different to each other
Sellers charge different prices
Free exit and entry
Large number of buyers and sellers
Product is identicalPerfectly competitive market
Free exit and entry
ExamplesClothing, Stationary Manufactures,
Crops
Thank you
