Monopolistic Competition (Non-Price Competition)

Business Assignment
Name
Institution
Introduction
Questions
Q.1
Monopolistic Competition (Non-Price Competition)
Definition of Non-Price Competition
In a competitive market, there are different ways by which different firms may competewith one another in the market and one of those ways is non-price competition. According to Baye & Beil (2006), Non-price competition is defined as a marketing strategy whereby which one given firm tries to distinguish services or products from other competing products on other attributes such as design and workmanship. In a monopolistic market, a firm may increase its sales and profits through a non-price means like product variation like a design without necessarily cutting prices. A monopolistic competitor may decide to change its products by either altering or changing the physical attributes or better still can be competitive by changing its promotional programs. In addition to that it is important to note that variation of product and variation of selling expenses would make the monopolistic firm’s demand curve to least elastic and at the same time increasing the cost of production. As a result, the total amount of profits or revenue that the monopolistic firm will be able to earn by producing the total quantity of goods or products that are equal to its Marginal Revenue with Marginal Cost will be changed greatly. In other words, for a monopolistic firm to remain as profitable as it used to be before the cost of production has been changed by varying the physical attributes of its products, the quantity of products being produced that will be equating its marginal revenue and marginal cost will also have to be changed.
Graph Showing Profit Maximization under Monopolistic Market
Q.1
lefttop
In a monopolistic market, profit is maximized at the point where the marginal revenue is equal to marginal cost (MR=MC). Marginal cost is the change in the total cost that is brought by a change in the total quantity produced. On the other hand marginal revenue is defined as the change in the total revenue that is brought by a change in the total products produced.
For example if a monopolist Total Cost (T.C) is represented by P= 10Q+Q^2. Its demand function is P=25-Q. Total Revenue (TR)= 25Q-Q^2
Q= quantity demanded.
MC=10+2Q
MR=25-2Q
10+2Q=25-2Q
Q=3.75
Profit is maximized at the point where MC=MR
Total Profit= TR-TC
How a Monopolistic Competitive Firm may Increase its Prices without losing its Customers
Customers are the most important stakeholders in any business and any would strive to keep all of its current customers as well as attracting new ones. Any firm that would want to remain competitive in the market must have proper pricing strategies. To add on that, it is important to note that pricing decisions can be categorized as one of the important decisions that any firm would make. There are strategies by which a monopolistic firm can use to increase its prices and at the same time afford to retain all of its customers. It is first important to understand the meaning of a monopolistic market; Baye & Beil (2006) defines a monopolistic competition as an industry where there are many sellers, selling products that is close substit...