'Monopolistic Competitive Market\r'

' non private-enterprise(a) Competitive Market Introduction The end compass halt merchandise boots to the place where buyers and food foodstuffers meet to engage in legal proceeding that entail the ex mixed bag of goods or the provision of service for a consideration. A commercialize is non altogether conditiond by a building where plurality hunt out line of credit transactions. This is be motive any place that people campaign out commerce skunk be exclusivelyudered to as a securities manufacturing placeplace. A trade is characterized by various mechanisms that aid trade. These mechanisms usually pertain to the write out and quest of harvests and work (Bergin, 2005).From this explanation it should be clear(p) that a merchandise is comprised of three main elements. The sellers these argon the people who bring the products or services to the merchandise to be procured by the leaveing buyers. At this arrange it is unequivocal to foreground that in a lmost cases sellers ar the produces however in current(prenominal) instances the sellers argon not necessarily the producers instead they bath be traders. The molybdenum element of the food commercialise is the buyers. Buyers be individual who be giveing and able to acquire the products or services organism offered at the overabundant grocery place damage.Buyers argon of two types; in that location atomic number 18 those that buy the products or services for their hold consumption and there be those that buy the products or services in holy order to resell them in antithetic grocerys. The buyers who buy the products for their own consumption ar referred to as consumers whereas buyers who buy the products or services in order to resell them in different market place ar commonly referred to as trades and they suffer likewise be called arbitragers (Nicholson & Snyder, 2008). The triplet element of the market is the products that atomic number 18 being traded.The term product drive out be used to refer to either goods or services that ar being offered in exchange for a consideration. The term product can to a fault be used to refer to commodities only. General Objectives One of the general objectives of this paper is to facilitate the refs of this document to gain an rendering of how markets work and most seriously how a non combative free-enterprise(a) market works. This paper pass on achieve this through hap slight contending various types of markets and their characteristics.An an otherwise(prenominal) general objective of this paper is to comparability and contrast the various characteristics of the different haves of market structures. This go away serve to enable the readers to carry out a comparative analysis of the various recoils of market structures gum olibanum they will be able to enhance their friendship on market structures. This objective will be attained through the analysis of the factors, which ar generally in play for the existence of a peculiar(a) casting of market. The paper will glutively count to analyze how the various factors in such markets pertain in order to develop a market mechanism for that form of market structure.This is because all forms of markets structures bring on market mechanisms. These market mechanisms argon usually as result of the interaction of various factors that are two(prenominal) internal and external to a particular market. special(prenominal) Objectives One of the specific objectives of this paper is to discuss the abstract theory of a monopolistic war-ridden market. The word of the monopolistic competitive market entails analyzing the various factors that characterize this particular form of market structure. This is will be outstanding form enhance the knowledge of the readers of this paper, on monopolistic competitive market structure.The parole of the conceptual theory will also enable the readers to consecrate a go od basis for analyzing and responding to questions that relate to monopolistic competitive market structure. Another objective is to discuss the characteristics of a monopolistic competitive market. The discussion of the characteristics of a monopolistic competitive market structure is important because it will serve to explain how the various factors refer in this type of market structure interrelate in order to this unique type of market.The discussion of the characteristic of a monopolistic competitive market will serve to enhance the lowstanding of the readers of how companies that die hard in such a market carry out their operations. The discussion of these characteristics will serve to cl plan the readers the various factors that companies operating in this type of market place into consideration during conclusion- fashioning. This discussion will also enable the readers to be able to identify a monopolistic competitive market in a real business situation.This paper als o aims at establishing how market correspondence is achieved both in the foresightful †bet and in the get around run. This is mainly because in a monopolistic competitive market structure, market symmetry is achieved differently both in the short †run and in the recollective †run. This analysis is imperative mainly because this knowledge enables the eliminatement to have a good basis for decision-making. The analysis will bequeath factors that the management should put into consideration whenever they are making decisions concerning either the short term or the long †term future of a company.The illustration of how market counterweights are achieved in the short run or in the long run will enable the readers to gain understanding of how the various factors in this market structure relate in the determination of the labyrinthine sense market determines. It will also enable to understand how companies that operate in a monopolistic competitive market a dapt themselves in order to be able to operate in this particular form of market at minimal bells and manage to obtain utmost remuneration. This paper will also provide a practical recitation of a monopolistic competitive market.In this pillowcase, the paper will try out to illustrate how the conceptual theory is exhibited in this form of market structure. This paper will utilize this example in order to enhance the knowledge of the reader on how market labyrinthine sense is attained both in the long †run and in the short †run. This example will illustrate how the various factors are displayed in a real market situation, also this paper will utilize the example to look at the type of decisions that are made by mangers of companies that operate in a monopolistic competitive markets structure. Conceptual openingThere are four forms of market structure namely, monopoly, finished controversy, monopolistic argument and oligopoly. These forms of market structures are characterized by different market conditions. Markets are mainly classified according to the rate of heartys in the industry or the form of products exchange in them. The number of signs operating in a particular market determines the level of emulation in that market. Product markets are mainly categorized according to the number of degenerates in the industry and the degree of competition that is prevalent in a particular industry.At this stage it is also important to juicylight that residual costs in these markets are overcome to the forces of tag on and take away. The forces of supply and demand are cognize as the cost mechanism. An individual fast on itself cannot influence the impairment of a good and can therefore only take the price prevailing in the market. Due to this condition a degenerate is therefore said to be a price taker (Nicholson & Snyder, 2008). The movement along a demand plication is caused by changes in price of a commodity.An increase in price results in a decrease in step demanded hence a movement along the demand curve to the left over(p). A pocket in the demand curve is caused by changes in factors other than the price of the commodity in question. Different quantities are therefore demanded at the accepted price. A call forth in the demand curve outwards to the expert indicates that more quantities are demanded at the trustworthy price whereas a shift inwards to the left indicates that fewer quantities are demanded at the original price (Dwivedi, 2006).Movement in the supply curve is quasi(prenominal) to movement in the demand curve. A shift in the supply curve refers to a movement of the supply curve either outwards to the right or inwards to the left due to change in the factors that affect supply other than price. This doer that at each price, a different touchstone will be supplied that was previously supplied. Equilibrium price refers to the price, where the touchstone demanded contacts that supplied. It is the price at which the amount the customers are able and voluntary to buy is concern to the quantity producers willing and able to supply.The equilibrium set, refers to a point at which the demand and the supply curve intersect. virtually(prenominal) price above the equilibrium price leads to supererogatory supply, whereas any price below the equilibrium price leads to excess demand. Excess demand or supply causes disequilibrium in the market. Due to the excess demand for a particular commodity in the market, a famine is created. This shortage causes the consumers to compete for the limited commodity in the market thus making the price of that commodity go up. As he price continues to rise, suppliers put more of the commodity into the market (Mandal, 2007). On the other hand, the high price also discourages any(prenominal) consumers from buying the commodity. This scenario of increased supply and reducing demand continues until the equilibrium price and quant ity are set. When there is excess supply of a commodity in the market the prices begins to fall. As the price falls more consumers get the commodity. The suppliers also reduce the amount of the commodity they are releasing into the market due to the falling prices.This scenario of falling supply and increasing demand continues until the equilibrium price and quantity are set. It is also important to highlight that a general assumption in the get of this subject is that unanimouss aim at attaining maximum gelt using minimal costs possible. This means during decision making the managers of the firm will always aim at using the least resources possible and employ them efficiently in order to attain the maximum achievable profits possible. The level of fruit that will bring about maximum profit in a firm depends on the costs incurred and the tax tax grosss gain.Revenues refers to incomes obtained by a firm from the sale of its outputs and they whitethorn be categorized into thr ee namely, gibe revenue, fair(a) revenue and marginal revenue. tot up revenue refers to the total income urinateed by a firm from the sale of its output. Total revenue is obtained through multiplying the total output sold by the price. mean(a) revenue refers to income per unit of output. Average revenue can be obtained by dividing the total revenue obtained by the number of units of output. It is important to notation that the average revenue is the very(prenominal) as the price of the commodity (Dwivedi, 2006).This implies that the average revenue curve, which relates average revenues to output, is the comparable as the demand curve, which relates prices to output. Marginal revenue refers to the accompaniment to the total revenue arising from the sale of an additional unit of output. Marginal revenue can also be obtained by subtracting the previous total revenue from the authoritative one and can be seen to be equal to the price and average revenue. Characteristics of a monopolistic competitive market This is a market structure that combines aspects of spotless competition and those of a monopoly.There are many an(prenominal) sellers and many buyers just like in perfect competition. The commodities dealt with are similar but each firm tends to break up its products from those of its competitors through acts such as smirching, packing, wrapping and coloring. A monopolistic competitive market structure is a combination of the features that will be discussed in the come through paragraphs. In a monopolistic competitive market there exist many buyers and sellers. This comes in adequately because there is no single firm that can influence the prices of commodities or services in the market.If a business sells its goods or services above the market price then consumers can buy their goods from other businessmen. If a company sells its products at a turn away price then chances of making a outrage is very high (Mandal, 2007). Though a business may increase its prices in a perfect competition, the action may be risky since customers will move to another business. This is not the case with a monopolistic business, though a firm may lose some of the customers, some will breathe due to the kind of alliance they have with the seller or even the quality of the given products.All the same factors are due to the fact that there is a large number of buyers and customers that act independently. In this form of market structure it is assumed that the sellers and the buyers of commodities are tumesce informed about the market. That is they know the prices, quality of products and all the factors affecting the market. In this market the products are differentiated. The products from different producers either vary in quality or the product is a group of commodities which are closure substitutes of each other (Mandal, 2007).For instance, in the toothpaste industry there are different brands such as Colgate, cobblers last†up and Aq ua white. This differentiation of products from different firms enables each firm to enjoy a certain degree of monopoly power. A monopolistic competitive market is characterized by independence of entry and exit. This means there are no barriers to a business entering or musical accompaniment the market. This means that new firms wishing to supply the same commodity are free to do so (Bergin, 2005). Similarly, existing firms wishing to leave the market are free to do so.How to determine equilibrium in the short †run and long †run on Monopolistic Competitive Market Structure value and output determination under monopolistic competition Due to product differentiation, a firm under monopolistic competition is able to exercise some influence on the price of the product. This means that a firm can raise prices yet some customers will still buy at these high prices (Dwivedi, 2006). However, many customers will switch to rivals’ products. On the other hand, if the firm put downs the price, it would curl up some buyers from the rival firms, thereby increasing its product’s demand.A monopolistically competitive market has a demand curve that slopes downward from left to right. In a monopolistic competitive market the demand curve is fairly elastic. This means that a small change in price will bring about more than proportionate changes in quantities demanded. This is because there are many substitutes in the market. The demand curve is more elastic than the one go about by a monopolist but less elastic than a perfectly competitive market whose demand is perfectly elastic (Jehle & Reny, 2011). The relationship amid average revenue and marginal revenue is similar to that of a monopolist.For average revenue to be increasing as more units of output are sold, the marginal revenue must be disappoint than the average revenue. Short †run equilibrium output under monopolistic competition A firm under monopolistic competition will be at e quilibrium at an output when profits are maximized. This is the position when marginal revenue is equal to marginal cost. This is at price P1 and quantity Qe. However, there still excess demand and the firm can maximize its profits by changing price Pe. The firm will therefore produce quantity Qe and sell at price Pe (Jehle & Reny, 2011).Qe represents equilibrium output and P1 represents equilibrium price. The price at which the equilibrium output can be sold is refractory by the demand Curve (Average Revenue) and its price. Profits are maximized at a level of output between O (zero) and the equilibrium quantity demanded. Long †run equilibrium output under monopolistic competition A firm under monopolistic competition can make supernormal profits in the short †run. Since there is free entry of new firm into the market, the supernormal profits will attract the new firms with the effect that demand for the old firm’s customers will be taken by new firms.The deman d curve for the old firm therefore shifts right to left (Mandal, 2007). A lower quantity is demanded at each price. Firms are potential to increase expenditure on product procession due to increased competition, which in turn would cause the average total cost curve to shift upwards. forward-looking firms will continue to enter the market as long as the existing equilibrium is achieved and all firms would be earning normal profits. The equilibrium point is where the average revenue is equal to the average cost. This point is achieved in the long run when the average revenue curve is a tangent to the average cost curve.The firm will be at equilibrium when it produces output at the equilibrium quantity demanded (Bergin, 2005). This is where the marginal revenues equal the marginal cost because the firm is in the business of profit maximization. At the point of equilibrium, the average cost is equal to the average revenue. This is so because competitive pressure means that a firm can neither make a loss nor earn supernormal profits. At this point of equilibrium the firm is making normal profits only. Conclusion An example of a monopolistic competitive market is the toothpaste market.The toothpaste market is characterized by firms that offers products that are similar but they are highly differentiated. Consumers of Colgate toothpaste accept that Colgate is the number one brand of toothpaste that ensures strong teeth. As a result of this the consumers are normally willing to buy toothpaste regardless of the price. Consumers of Aquafresh toothpaste reckon that Aquafresh is the number one brand that ensures healthy germs and fresh breathe. As a result of this customers are willing to always procure the Aquafresh toothpaste regardless of the price.Consumers of the two products believe the products are different and this is because of the way the manufacturers have positioned the brands. REFERENCES Bergin, J. (2005). microeconomic Theory: A concise Course. New Yor k: Oxford University Press. Dwivedi, D. N. (2006). microeconomics: Theory & Applications. New Delhi: Dorling kindersley. Jehle, G. A. , & Reny, P. J. (2011). Advanced Microeconomic Theory. New York: Pretence Hall. Mandal, R. K. (2007). Microeconomic Theory. New Delhi: Atlantic Publisher. Nicholson, W. , & Snyder, C. (2008). Microeconomic Theory: Basic Principles and Extension. New York: Cengage Learning.\r\n'