Question

Define Monopolistic and briefly describe the main aims of it.

Answer 1

Monopolistic competition - It is a type of market structure which involves large amount of sellers selling differentiated good. There is the barrier of entry for new firms in the short run, but new firm can enter or exit in the long run. there is cross-price elasticity because even products are not same but still they are close substitutes.

Aims of the monopolistic-

1) Since there are large amount of sellers and no seller have absoulte market power. therefore seller try to achieve greater martket share by selling differentiated yet close substitute goods. To increase the market share they try varies methods like advertisement, packaging, giving discounts.

2)since monopolist have downward sloping demand curve, which is elastic in nature. monopolist cannot infinitely produce quantity. Monopolist always try to produce at left portion of MR curve before it interesct MC curve, that is before MR = MC point to still enjoy profit.

3) In the monopolistic competition one firm cannot influence the whole market. That'swhy each firm have limited market share.

4)In the monopolistic competition firm always produce below the full capacity level.