Price determination under monopolistic competition with diagram. Explain price and output determined under monopolistic competition with help of diagram? 2022-12-28

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Monopolistic competition is a market structure that falls between perfect competition and pure monopoly. In monopolistic competition, there are many firms selling differentiated products, but each firm has some degree of market power. This means that each firm can charge a price higher than the marginal cost of production, but they must also take into consideration the prices and product offerings of their competitors.

The determination of price under monopolistic competition is influenced by both the demand for the firm's product and the cost of production. The demand curve for a firm under monopolistic competition is typically downward sloping, but not as steep as it would be under perfect competition. This is because the firm has some market power and can charge a higher price for its product without losing all of its customers.

The cost of production also plays a role in price determination under monopolistic competition. A firm will need to consider its fixed costs, variable costs, and marginal cost when setting a price. The marginal cost is the cost of producing one additional unit of the product, and it is important because the firm will want to set a price that covers the marginal cost and earns a profit.

In order to determine the optimal price and quantity to sell, a firm under monopolistic competition can use a diagram similar to the one shown below. The diagram shows the demand curve for the firm's product (D), the marginal cost curve (MC), and the average total cost curve (ATC). The intersection of the demand curve and the marginal cost curve represents the profit-maximizing price and quantity, known as the equilibrium point.

[Insert diagram here]

At the equilibrium point, the firm is able to charge a price that covers the marginal cost of production and earns a profit. If the firm were to charge a higher price, it would decrease the quantity demanded and potentially lead to losses. On the other hand, if the firm were to charge a lower price, it would increase the quantity demanded but also decrease the profit earned.

In summary, the determination of price under monopolistic competition is influenced by demand for the firm's product and the cost of production. Firms must consider the prices and product offerings of their competitors and aim to set a price that covers the marginal cost and earns a profit. The use of a diagram can help firms understand the trade-offs involved and determine the optimal price and quantity to sell.

Price Determination under Monopoly

price determination under monopolistic competition with diagram

For example, there are several brands of soaps and every producer and sellers of these brands is a monopolist to some extent because of different brands but since all the brands are close substitutes to each other, there is a competition among the producers and sellers of these brands. He cannot do both the things simultaneously. ADVERTISEMENTS: The following article will guide you about how to determine price and output under monopolistic competition. In other words, the monopolist will be in equilibrium position at that level of output at which marginal revenue equals marginal cost. The entry of new firms and the exit of lossmaking firms will result in normal profit for the firms in the industry. But under differing revenue and cost conditions, the monopolistically competitive firms many incur loss.

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PRICE DETERMINATION UNDER MONOPOLISTIC COMPETITION DEFINITIONS According to

price determination under monopolistic competition with diagram

MR is the marginal revenue curve, which lies below the average revenue curve AR. Generally, neither the number of firms producing a product is very large as in perfect competition nor is it almost one as in monopoly. Figure 18 B shows a short-run situation in which the monopolist earns only normal profits. Price Determination under Competition and Monopoly Compared : In a summary way, we can compare the competitive price-output equili­brium and monopoly price-output equilibrium. Under this, the number of producers and sellers is large and most of them work at small scale. Thus, the price of the product is given for the consumer.

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How to Determine Price & Output under Monopolistic Competition?

price determination under monopolistic competition with diagram

Neither monopoly nor perfect competition is found in real life but only monopolistic competition. New firms can also enter into the market in the period. It is assumed that demand for the product increases due to increase in selling costs, resulting into extra profits for the producers and demand curve shifts to the right as a result of increase in selling costs. Thus, whatever price he fixes and whatever output he decides to produce is determined by the conditions of demand. Some economists think that, in a short period, three different situations may arise before the monopolist: i When the monopolist earns abnormal profits, ii When he gets only normal profits, and ADVERTISEMENTS: iii When he suffers losses.

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Price and Output Determination under Monopoly (with graph)

price determination under monopolistic competition with diagram

Under imperfect competition, number of sellers is more than one. See Figure 2 Price discrimination may be a personal, b local, or c according to trade or use: a Personal: It is personal when different prices are charged for different persons. See figure 1 vi In the long run, the firm is earning normal profit. AR curve represents price of different units and MR curves represents the MR of different units. A Monopolist being the only producer and seller of that commodity can determine its price and the quantity of its production or supply.

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Price Determination under Imperfect Competition (Explain with Diagram)

price determination under monopolistic competition with diagram

In figure b MP is less than MT and TP is the loss per unit of output. The situation in the real world lies between these two extremes. If the product is non-perishable, the monopolist might keep it in stock in the hope of selling it future when the market improves. The demand curve is fairly elastic. However, following two conditions should be satisfied for the equilibrium of a firm in the long run. It can be seen from Diagram 4.

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Monopolistic Competition: Meaning, Features, Price determination

price determination under monopolistic competition with diagram

In this situation, average revenue is equal to marginal revenue. This ensures that there is no rival of the monopolist. A firm under perfect competition need not incur any selling costs. Its corresponding marginal revenue curve is also downward sloping and lies below it see Fig. ADVERTISEMENTS: This thing Mrs. These situations can be illustrated with the help of diagram. In this way, the monopolist is able to maximise his profit.

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Explain price and output determined under monopolistic competition with help of diagram?

price determination under monopolistic competition with diagram

Here, average revenue and average cost are equal. Both MR and MC are less than AR i. The sub-market will be arranged in ascending order of their elasticities, the higher price being charged in the least elastic market and vice versa. He is afraid of public opinion, of Government interference and of substitutes being adopted for the commodity he produces. On the other hand, the monopolist can influence the price. This can be explained with the help of a diagram 1.

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Price Determination under Discriminating Monopoly (With Diagram)

price determination under monopolistic competition with diagram

It will increase the supply of product and as a result, price of the product will decrease. But he cannot fix both the price and also force the people to buy a pre-determined quantity at that price. ADVERTISEMENTS: Imperfect competition covers all situations where there is neither pure competition nor pure monopoly. In this , equilibrium output is OQ. As shown in the diagram, the AR and MR curves are fairly elastic. ADVERTISEMENTS: It can be seen from the diagram that until OM output, the marginal revenue is greater than marginal cost, but beyond OM the marginal revenue is less than marginal cost. After a point proportionate increase in sales is less than the increase in selling costs.

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Price Determination under Monopolistic Competition

price determination under monopolistic competition with diagram

It is a signal for the consumers to reduce consumption. Actually, there is monopolistic competition which is one of the various forms that imperfect competition takes. A good may be sold in one town for Re. In each segment the producer has a clientele of his own. Price Determination under Monopoly : Under monopoly conditions, too, there is bound to be interaction between the forces of demand and supply.


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