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Monopolistic Competition in Clothing Industry

Monopolistic competition refers to a situation where there are many sellers of differentiated products that are close substitutes. While there is competition between firms, the products are not perfectly interchangeable. Each firm can independently set its own prices and output. Examples include clothing stores, computer retailers, and jewelry shops. Key characteristics include many small sellers, product differentiation, elastic demand curves for individual firms, and free entry and exit of businesses in the long run. Firms seek to maximize short-run profits, which maximizes long-run profits under these conditions.

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Vaishali Srivastava
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43 views18 pages

Monopolistic Competition in Clothing Industry

Monopolistic competition refers to a situation where there are many sellers of differentiated products that are close substitutes. While there is competition between firms, the products are not perfectly interchangeable. Each firm can independently set its own prices and output. Examples include clothing stores, computer retailers, and jewelry shops. Key characteristics include many small sellers, product differentiation, elastic demand curves for individual firms, and free entry and exit of businesses in the long run. Firms seek to maximize short-run profits, which maximizes long-run profits under these conditions.

Uploaded by

Vaishali Srivastava
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

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MONOPOLISTIC COMPETITION

I VA

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DEFINITION :
Monopolistic competition refers to a situation where there are many sellers of a differentiated product. There is competition which is keen, though not perfect, between many firms making very similar products , which are close but not perfect substitute . Since the products are differentiated, each seller can independently decide about his own price output policies.
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EXAMPLES OF MONOPOLISTIC COMPETITION

Computers Stations

Radio

Clothing Jewelry Health

Spas Stores
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Apparel

Characteristics of Monopolistic competition


v

MANY NUMBERS OF SELLERS : The numbers of sellers is many and small enough . They are many in number and no seller is big enough to influence the market price determined by industry demand and supply.

Each seller pursues an independent price output policy

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Product differentiation : There are many firms producing a particular products but each firm introduces its product as different from others in terms of quality, advertisement, patent rights, trademarks etc.

Differentiation makes the products of different firms heterogeneous but there products are inherently similar. These are close substitutes of one another.

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Higher elasticity of demand: Due to differentiated product each individual firm possess some, but not complete , monopoly power and therefore its demand curve is more elastic than that of monopoly firm. This means that a small decrease in price of the product may lead to a large increase in demand for the product, assuming the price of other firms remaining the same

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Freedom of entry of new firms and exit of old firms : There are many small firms producing a close substitute of a product. In long run, therefore, they cannot any restrictions on entry or exit of the firm

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Maximization of short run profits implies maximization of long run profits : The long run consist of a number of identical short run periods, which are assumed to be independent of one another in the sense that decision in one period do not affect future periods and are not affected by past actions.

The optimum decision for any one period is the optimum decision for any other period

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Both demand and cost curves for all products are uniform throughout the group : This requires that consumers preferences be evenly distributed among the different sellers, and that differences between the products be such as not to give rise to differences in cost

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Multiple Dimensions of Competition


v

One dimension of competition is product differentiation. Another is competing on perceived quality. advertising is another. include service and distribution outlets.
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Competitive Others

A Monopolistically Competitive Firm: Above Normal Profit

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A Monopolistically Competitive Firm: Economic Loss

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A Monopolistically Competitive Firm: Normal Profit

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Comparing Perfect and Monopolistic Competition


Both

the monopolistic competitor and the perfect competitor make zero economic profit in the long run.

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Comparing Perfect and Monopolistic Competition

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Monopolistic Competition Compared with Perfect Competition Graph

In monopolistic competition in the long run, P > min ATC, In perfect competition in the long run, P = min ATC Outcome: Monopolistic competition output is lower and price is higher than perfect competition

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THANK YOU

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