Description
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity (this contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry).
MONOPOLISTIC COMPETITION
INTRODUCTION
• Model of monopolistic competition is developed by EDWARD CHAMBERLIN. • CHAMBERLIN observed that even in market with a large number of sellers the products of individual firms are rarely homogeneous.
?MEANING AND FEATURES:
• Monopolistic competition refers to a situation where there are many sellers of differentiated product. • There is competition which is keen, though not perfect. • Firms making similar products, which are close but not perfect substitutes. • Each seller can independently decide about his own price-output policies.
Characteristics of monopolistic competition
? Many no. of sellers. ? Product differentiation.
• advertisement • Patents rights and trademarks • Quality differentiation
? Freedom of entry of new firms and exit of the old firms. ? High elasticity of demand.
SHORT RUN EQUILIBRIUM
LONG RUN EQUILIBRIUM
• Example:
•In the Long Run They are ALL Dead • DOGGONE,a pet mortuary in Chicago, offers complete funerals for dogs. The pet funeral business in Chicago is monopolistically competitive. The manager of DOGGONE has determined that the firm?s demand equation is given by P= 309.75 – Q and the longrun total cost equation is TC= 400Q-20Q2+Q3, where Q is the number of funerals per month. • What is the long-run equilibrium price and quantity and how much economic profit will the firm earn?
GROUP EQUILIBRIUM
• A group includes all those firms that produce closely related goods, i.e., the products which are close technological economic substitutes. • An operational definition of a group is that the demand for each product is highly elastic and is influenced by changes in the price of other products sold by the firms in the group.
ASSUMPTION OF GROUP EQULIBRIUM
• Demand and cost curves for all „products? are uniform throughout the group. • Products are differentiated but close substitutes.
• Firms pursue profit maximization in both short and long run.
• Prices for factor of production and technology are given. • There is free entry and exit of the firms.
Excess (or unused) Capacity & Monopolistic Competition:
“The equilibrium output of the firm occurs at an output less than the one at which average total cost is minimum.”
NON-PRICE COMPETITION
?PRODUCT DIFFERENTIATION
?ADVERTISING
PRODUCT DIFFERENTIATION
? MARKETING IS OFTEN THE KEY TO SUCCESSFUL DIFFERENTIATION.
EXAMPLES OF PRODUCT DIFFERENTIATION.
MEASUREMENT OF PRODUCT DIFFERENTIATION
?Advertising to sales ratio.
Higher the ratio, less real difference exists in the product.
?Coefficient of cross elasticity of demand.
Higher the cross elasticity, lesser the product differentiation between substitutes.
?Entropic Measurement.
?Product differentiation barriers.
ADVERTISING
•Informative Advertising. • Competitive Advertising.
Non price competition : Selling cost and Advertising Expenditure
Introduction
Selling costs distinguished from production cost
?Meaning ?In terms of demand
Importance of advertising and other costs under monopolistic
competition
1.The advertisement by the monopolist is
informative and promotional and not competitive 2.Product differenciation
Optimum Level Of Advertising Outlay(Selling Cost): With Price And Product Variety as Constant
Optimum Level of Advertising Expenditure or Selling Cost: When Both Price and Output are Variables
Effect Of Advertising (Selling Cost) on Elasticity Of Demand
Effect Of Advertising (Selling Cost) on Price and Output
doc_570929667.pptx
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity (this contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry).
MONOPOLISTIC COMPETITION
INTRODUCTION
• Model of monopolistic competition is developed by EDWARD CHAMBERLIN. • CHAMBERLIN observed that even in market with a large number of sellers the products of individual firms are rarely homogeneous.
?MEANING AND FEATURES:
• Monopolistic competition refers to a situation where there are many sellers of differentiated product. • There is competition which is keen, though not perfect. • Firms making similar products, which are close but not perfect substitutes. • Each seller can independently decide about his own price-output policies.
Characteristics of monopolistic competition
? Many no. of sellers. ? Product differentiation.
• advertisement • Patents rights and trademarks • Quality differentiation
? Freedom of entry of new firms and exit of the old firms. ? High elasticity of demand.
SHORT RUN EQUILIBRIUM
LONG RUN EQUILIBRIUM
• Example:
•In the Long Run They are ALL Dead • DOGGONE,a pet mortuary in Chicago, offers complete funerals for dogs. The pet funeral business in Chicago is monopolistically competitive. The manager of DOGGONE has determined that the firm?s demand equation is given by P= 309.75 – Q and the longrun total cost equation is TC= 400Q-20Q2+Q3, where Q is the number of funerals per month. • What is the long-run equilibrium price and quantity and how much economic profit will the firm earn?
GROUP EQUILIBRIUM
• A group includes all those firms that produce closely related goods, i.e., the products which are close technological economic substitutes. • An operational definition of a group is that the demand for each product is highly elastic and is influenced by changes in the price of other products sold by the firms in the group.
ASSUMPTION OF GROUP EQULIBRIUM
• Demand and cost curves for all „products? are uniform throughout the group. • Products are differentiated but close substitutes.
• Firms pursue profit maximization in both short and long run.
• Prices for factor of production and technology are given. • There is free entry and exit of the firms.
Excess (or unused) Capacity & Monopolistic Competition:
“The equilibrium output of the firm occurs at an output less than the one at which average total cost is minimum.”
NON-PRICE COMPETITION
?PRODUCT DIFFERENTIATION
?ADVERTISING
PRODUCT DIFFERENTIATION
? MARKETING IS OFTEN THE KEY TO SUCCESSFUL DIFFERENTIATION.
EXAMPLES OF PRODUCT DIFFERENTIATION.
MEASUREMENT OF PRODUCT DIFFERENTIATION
?Advertising to sales ratio.
Higher the ratio, less real difference exists in the product.
?Coefficient of cross elasticity of demand.
Higher the cross elasticity, lesser the product differentiation between substitutes.
?Entropic Measurement.
?Product differentiation barriers.
ADVERTISING
•Informative Advertising. • Competitive Advertising.
Non price competition : Selling cost and Advertising Expenditure
Introduction
Selling costs distinguished from production cost
?Meaning ?In terms of demand
Importance of advertising and other costs under monopolistic
competition
1.The advertisement by the monopolist is
informative and promotional and not competitive 2.Product differenciation
Optimum Level Of Advertising Outlay(Selling Cost): With Price And Product Variety as Constant
Optimum Level of Advertising Expenditure or Selling Cost: When Both Price and Output are Variables
Effect Of Advertising (Selling Cost) on Elasticity Of Demand
Effect Of Advertising (Selling Cost) on Price and Output
doc_570929667.pptx