price = marginal revenue.
marginal revenue > average revenue.
price > marginal cost.
total revenue > marginal co
A monopolistically competitive firm's demand curve will be least elastic when its products are unique and have few close substitutes, leading to less responsiveness to price changes by consumers.
Consumers will substitute with a rival's product.
Consumers will substitute a rival's product.
When a monopolistically competitive firm charges an excessive price for its product, it risks losing customers to competitors offering similar products at lower prices. This price increase may lead to a decrease in demand, as consumers seek alternatives. In the long run, if the firm continues to maintain high prices without enhancing product quality or differentiation, it could see a decline in market share and profitability, ultimately prompting it to adjust its pricing strategy to remain competitive.
Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.
A monopolistically competitive firm's demand curve will be least elastic when its products are unique and have few close substitutes, leading to less responsiveness to price changes by consumers.
Consumers will substitute with a rival's product.
Consumers will substitute with a rival's product.
Consumers will substitute with a rival's product.
Consumers will substitute a rival's product.
Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.
In a monopoly, the monopolist company is the only product in the market place. However, a company competing in a monopolistically competitive market has multiple "similar" competitors that all try and differentiate themselves with specialized or additional services; i.e. the Italian restaurant serving food only from northern Italy. These companies may be a monopoly in the sense that their niche product is one-of-a-kind, but there are substitute products that can replace them if their price becomes too high to the consumer. As a result, the firm in a monopolistically competitive has a more elastic demand than a true monopolist.
Non-price competition refers to competition among firms that choose to distinguish their product via non-price means. EX: style, delivery, location, atmosphere, promotions, etc. Non-price competition is often used by firms that wish to differentiate between virtually identical products (dry-cleaners, food products, cigarettes, etc). Although any firm can use non-price competition, it is most common among monopolistically competitive firms. The reason for this is that firms which operate in the monopolistically competitive market are price takers, that is, they simply do not have enough market power to influence or change the price of their good. Consequently, in order to distinguish themselves, they must use non-price means.
Monopolistically competitive firms earn profits by differentiating their products, allowing them to charge higher prices than those in perfectly competitive markets. They attract customers through unique features, branding, or quality, leading to a downward-sloping demand curve. In the short run, if the price exceeds average total costs, they can earn economic profits. However, in the long run, the entry of new firms typically erodes these profits, as they offer similar products and increase competition.
A monopolist has more control over pricing because it is the sole provider of a good or service, allowing it to set prices based on its desired profit maximization strategy. In contrast, a perfectly competitive firm is a price taker, meaning it must accept the market price determined by the overall supply and demand. Therefore, it is generally easier for a monopolist to determine price compared to a perfectly competitive firm.
In a competitive market, the price does equal the marginal revenue.
To determine the best price for a product, businesses typically consider factors such as production costs, competition, target market, and desired profit margin. Conducting market research and analyzing consumer behavior can also help in setting a competitive and profitable price.