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A monopolistically-competitive company might be said to be marginally inefficient because the company produces at an output where average total cost is not a minimum. A monopolistically competitive market is a productively inefficient market structure because marginal cost is less than price in the long run.
The motivation behind the kink is that in an oligopolistic or monopolistic competitive market, firms will not raise their prices because even a small price increase will lose many customers. However, even a large price decrease will gain only a few customers because such an action will begin a price war with other firms.
Thus, for example, a monopoly protected by high barriers to entry (for example, it owns all the strategic resources) will make supernormal or abnormal profits with no fear of competition. However, in the same case, if it did not own the strategic resources for production, other firms could easily enter the market, which would lead to higher ...
Otherwise, other firms can produce substitutes to replace the monopoly firm's products, and a monopolistic firm cannot become the only supplier in the market. So consumers have no other choice. Economic barriers : Economic barriers include economies of scale , capital requirements, cost advantages, and technological superiority.
In the short run, economic profit is positive, but it approaches zero in the long run. Firms in monopolistic competition tend to advertise heavily because different firms need to distinguish similar products than others. [16] Examples of monopolistic competition include; restaurants, hair salons, clothing, and electronics.
1. Each firm is presumed to be able to differentiate its product from that of its rivals. Cars are a good example here; they are very different yet in direct competition with each other. This means there will be some customer loyalty, which allows for some flexibility for the firm to move to a higher price.
Often, firms with monopoly power exist in industries with high barriers to entry, which include, but are not limited to: Economies of scale; Predatory pricing [20] Control of key resources (required in production of the good) Legal regulations [21] A well-known example of monopolistic market power is Microsoft's market share in PC operating ...
Although a regulated monopoly will not have a monopoly profit that is high as it would be in an unregulated situation, it still can have an economic profit that is still above what a competitive firm has in a truly competitive market. [2] Government regulations of the price the monopoly can charge reduce the monopoly profit, but do not ...