Reference no: EM132029091

Discussion - The following discussion from Seth -Microeconomics (100-200 words)

Having gone through the first 6 weeks of this course I thought that Monopolistic markets and Competitive markets were two separate things (which they can be) but I did not think it was possible to have both types in a single market.

Monopolistic competition refers to a market that has many sellers that provide a similar product that will have the same pool of customers but each product has its own brand, attribute(s) or technology that separate a company from its competitors; even slightly. An example I would like to provide is an eat-in restaurant; such restaurants are Applebee's, Outback Steakhouse, and Uno's, etc.

Within this market there monopolies in the sense that a few dominant chains control a sizable portion of the consumer market. Each of these restaurants have signatures items which separate them from competition but also will have similar dishes and pricing.

These few monopolies of the food industry are also "competitive" in the sense that there is free entry (and exit) to the market and each are trying to keep costs low while providing a unique dining experience for the same consumer base as the others.

A firm in a monopolistic competitive market will make exactly $0.00 in economic profit if they stick it out in the long run. If a company is in a monopolistic competitive market then there is free entry and exit to the market by competitors. If said firm starts to make an economic profit then competitors will join this market (free entry). If a new company joins the market they will increase supply and therefore drive the demand curve to the left which reduces economic profit for the whole market.

Of course on the other side, when firms are losing money the number of firms in the market will decrease and shift the demand curve back to the right which increases profits (reduces losses). One aspect of this I would be interested to know is what percentage of firms can last in a market like this and survive. There would have to be other products in different markets in order to have capital to sustain such a fluctuation.