Q. Explain Monopolistic Competition among firms for a particular industry. Draw graph. Monopolistic competition
The model of monopolistic competition describes a common market structure in which firms have many competitors, but each one sells a slightly different product. If there was no differentiation, the competition would turn into perfect competition. In effect, monopolistic competition is something of a hybrid between perfect competition and monopoly. Comparable to perfect competition, monopolistic competition contains a large number of extremely competitive firms. However, comparable to monopoly, each firm has market control and faces a negatively-sloped demand curve. Monopolistic competition as a market structure was first identified in the 1930s by American economist Edward Chamberlin, and English economist Joan Robinson. In Pakistan, most small businesses operate under conditions of monopolistic competition, including independently owned and operated high-street stores and hair dressers and even restaurants. In the case of restaurants, each one offers something different and possesses an element of uniqueness, but all are essentially competing for the same customers, thus the high level of competition prevails. In this report, Hair dressing salons are being taken as an example. Characteristics of a firm facing monopolistic competition.
Monopolistically competitive markets exhibit the following characteristics: 1.
Each firm makes independent decisions about price and output, based on its product, its market, and its costs of production: The various hair dressing salons in the city have different prices as there are different costs (fixed and variable – Rent, staff, hair care products) in different salons. Moreover, each hair dresser tries to differentiate its product based on branding.
Knowledge is widely spread between participants, but it is unlikely to be perfect: For example, customers can review all the services available from hair...
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