Watch this video, Oligopolies and Monopolistic Competition, to help you prepare for this week’s discussion.
Reply to these prompts by using a business with which your familiar, or a dream business you want to start:
- With your selected business in mind, determine if it is competitive, monopolistic competitive, an oligopoly, or pure monopoly. Explain how you drew your conclusion about its market structure.
- How does the business/firm in this industry determine the price it will charge for the products or services it sells?
Answer preview
Restaurants set their price above the marginal cost. The cost of commodities is higher than the cost of producing the product. The business attains equilibrium price when marginal cost (MC) is equal to marginal revenue (MR) (Carlton & Perloff, 2015). That is at the point where making one extra unit is similar to the income it brings as well. Profit is maximized by pricing the commodities above the cost of production. Restaurants also consider the price of other businesses that produce products that are almost similar to theirs. It is rare for restaurants to provide a similar output; however, those that have products that are close in resemblance may set prices close to the other player. For example, fast food restaurants, five-star restaurants, and so on. In conclusion, firms in the monopolistic competition are more in number when compared to monopolies and are more differentiated when compared to those in perfect competition.
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