economics assignment 3 monopolistic competition

economics assignment 3 monopolistic competition -...

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Introduction: There are various sub-types of competition like monopoly, duopoly, oligopoly, and monopolistic competition, which are included in imperfect competition. Monopoly means the market having only a single firm working actively. Duopoly is a market where two firms compete or work actively, while oligopoly and monopolistic competition are more complex and interesting. There are so many small firms involved in the monopolistic competition. These firms enjoy a little freedom to set the prices regardless the prices of the other similar firms. For e.g. cafes, restaurants, hair salon, clothing stores etc. This little freedom of choice enjoyed by such shops are only attained when the technique, presentation, and other such qualities either tangible or intangible, are utilized by the firm. Cafes and restaurants make noteworthy changes like presented differently, spices are made more effective, the thickness or the thinness of curries, quantity of the qualitative food etc. Moreover, these monopolistic firms also have their signature product, due to these signature products, the firms enjoy the certain level of monopolistic effect on the prices of their product. There is more elasticity in the demand of the products because the products and services of these firms are different in certain ways even if there are many similarities and this difference make the product demanding. However, if price of product is increased by any firm, it will benefit the other firms selling similar product. So, for earning more profit these firms are required to reduce their variable cost because of which the total cost is reduced and along with that short term economic profit could also be achieved. And for this achievement, it is necessary for the firm to produce the quantity equivalent to the point of intersection of marginal cost and marginal revenue. Question 1. Economists would argue that each of these cafés enjoys a degree of monopoly power which is offset by a degree of competition as well. Discuss the nature of these competitive forces in the context of a typical café and then explain the theoretical cost and
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