STUDENTS NAME;DIDI KINWANI

COURSE CODE ;ECONOMICS 274

DATE OF SUBMISSION;03RD FEB 2018

The global market is very competetive with different firms producing,marketing and selling same brand
of goods,this has led to the emergence of imperfect and perfect competition.Monopolistic competition
lies inform of imperfect competition.

Monopolistic competition can be therefore defined as a form of market structure where firms sell goods
that are differented from one another by branding and quality,thus despite the fact that these firms are
competing agaianst each other,each firm sell slightly different brand,examples are restuarants,high
end stores,sports apparels manufucturing firms eg Nike,Addidas etc.

Monolistically competetive markets possese serveral characteristics which distinguises it from a

monopoly,they are

1. It’s the sole resposibilty of the producer to set the prices of their products,given the firm will
take into consideration,the cost of production it incurred,the market it covers and the quality of
its product
2. There is ulimited freedom to enter and exit the market.
3. Advertising of its products due to stiff competition from other firms.
4. Lack of total control of the market due to the large number of producers and consumers
5. Product differentiation via four major ways physical product differentiation,market
differentiation,human capital differetiation and differetiation through mode of distribution
used eg through mail,or via internet.
6. Lack of proper market iformation by both the seller and the buyer.eg demand and supply of the
market.
7. Presences of large number of independent firms competing in the market and fighting for a
niche in the market.
These characteristics greatly affects monopolistically competative firms as they are the determiners on
its perfomence I both the short run and the long run profits,losses equilibrium.The demand curve in a
monopolistic competition is always elastic as even though the many competing firms sells products that
are similar the demand curve remains elastic because the differentiated goods can act as substitute in
the event that one or two firms increases the prices,then the customers still have an option of buying
from other firms.

The elasticity of the demand curve in a monopolistic competition makes it resemble a pure competion
market where elasticity is perfect whereas demand is not elastic,as monopolistic firm has few rivals and
due to the availabilty of substitutes.

The demand curve is downward sloping,this leads to a reduction of its marginal revenue as compared to
market price,for a firm to increase demand it must lower prices which leads to the lowering of the units
of production.marginal revenue must equal marginal cost for them to realise profit either in the short or
long run.

By producing a quality that responds to the market demand when marginal revenue equals marginal
cost and total average cost is below market price then the monopolistic firm will make super profit.

However in the event that the average cost is beyond the market price,the firm will make losses,and it
might face its eminent exit from market.

Where consumers observe a decrease in degree differetiation of products,and the icrease of rival
firms,then the monopolistic market shall cease to exist as the products will be similar as one
fundamental rule is product differetiation,with so many firms producing same products the market will
no longer be monopolistic but a perfect one.

The market structure will be fractured as the dyamics in both the short run and long term changes.
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