Monopolistic competition. Advantages and disadvantages of monopolistic competition Advantages and disadvantages of monopolistic competition

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It can be proven that with linear functions of industry demand and total costs of duopolists in the Stackelberg model, the market price will be lower than in the Cournot model.

Cartel. Since maximum profit in the market of a homogeneous good is ensured by a monopoly price, then duopolists (oligopolists) will receive the greatest profit in the event of organizing a cartel - an explicit or secret conspiracy to limit market supply in order to maintain a monopoly price.

However, the cartel agreement is not a Nash equilibrium, since each cartel member can increase profits by increasing its output as long as the others adhere to the agreement. The likelihood of violating a cartel agreement increases as the number of its members increases.

The prisoner's dilemma clearly shows the features of oligopolistic pricing.

Two thieves were caught red-handed and charged with a number of thefts. Each of them faces a dilemma - whether to admit to old (unproven) thefts or not.

Rice. 10.14. "Prisoner's Dilemma"

If only one of the thieves confesses, then the one who confesses receives a minimum prison term (1 year), and his unrepentant comrade receives a maximum (10 years). If both thieves confess at the same time, then both will receive a small leniency (6 years in prison); if both persist, then both will be punished only for the last theft (3 years each). The prisoners are sitting in different cells and cannot agree with each other. Before us is a non-cooperative (inconsistent) game with a non-zero (in this case negative) sum. A characteristic feature of this game is that it is unprofitable for both participants to be guided by their private (selfish) interests.

Concept of product differentiation

Since monopolistic competition is characterized by product differentiation, I will look at this concept in more depth.

Product differentiation arises due to the existence of the following differences between market segments:

1) Quality. It is not a one-dimensional characteristic, that is, it does not boil down to whether the product is good or bad. Even the simple consumer properties of the simplest products are surprisingly varied. For example, toothpaste should:

Clean your teeth (of course - it’s toothpaste);

Disinfect the oral cavity;

Strengthen tooth enamel;

Strengthen gums;

Be pleasant to the taste, etc.

And all these properties can only be combined in one product as an exception. In many cases, a gain in one product attribute leads to a loss in another. Therefore, prioritizing the main consumer qualities of a product opens up opportunities for a wide variety of products. And they all become unique in their own way and find their consumer - occupy their niche in the market.

2) Imaginary quality. Moreover, imaginary qualitative differences between them can serve as the basis for product differentiation. It has long been known, in particular, that a significant percentage of smokers in test tests are unable to distinguish “their” brand from others, although in ordinary life they faithfully buy only this brand. Let us pay special attention to this circumstance: from the point of view of consumer market behavior, it does not matter whether the products are actually different. The main thing is that it seems so to him.

3) Terms and services. Differences in service unite the second (after quality) group of product differentiation factors. The fact is that a wide group of products, especially technically complex consumer goods for industrial purposes, are characterized by a long-term nature of interaction between the seller and the buyer. An expensive car must work properly not only at the time of purchase, but throughout its entire service life. Full cycle service includes service at the time of purchase and pre-sales service. Each of these operations can be performed to a different extent (or not performed at all). As a result, one and the same product seems to be decomposed into a whole range of varieties that differ sharply in their service characteristics and therefore seem to turn into completely different goods.

Thirdly, it contributes to the formation of new needs.

Fourth, advertising creates product differentiation where there is no real difference between them. As already noted, in the cigarette market many qualitative differences are imaginary. So, behind imaginary differences in quality, real differences in the advertising presentation of a product are often hidden, although the consumer may not be aware of this.

To summarize, I can say that product differentiation provides firms with certain monopolistic advantages. But this situation has another interesting side. Exit to monopoly competitive market is not blocked by any barriers, with the exception of barriers related to product differentiation. In other words, product differentiation not only creates advantages for the company, but also helps to avoid being bullied by competitors: it is not so easy to replicate the subtle taste of a fine liqueur or at least an equivalent response to a successful advertising campaign.

Advantages and disadvantages of monopolistic competition

Monopolistic competition has its advantages and disadvantages.

The advantages of monopolistic competition include:

Product differentiation expands consumer choice;

Strong competition keeps prices to the level of marginal costs, which are at the minimum possible level for differentiated products (albeit slightly higher than in a perfectly competitive market);

The bargaining power of an individual firm is relatively small, so firms mostly obtain rather than set prices;

This is the most favorable market for buyers.

As a rule, firms operating in conditions of monopolistic competition are small, both relatively and absolutely. The size of firms is strictly limited by the rapid emergence of diseconomies of scale in production (diseconomies of scale in production). And if existing firms fully exploit the possibilities of economies of scale, then industry supply will increase due to the entry of new firms into the industry, and not due to the expansion of the activities of old ones.

The small size determines the main disadvantages of this market model:

Instability of market conditions and uncertainty of small business. If market demand is weak, this can lead to financial losses, bankruptcy, and exit from the industry. If market demand is strong, then this increases the influx of new firms into the industry and limits the receipt of profits above normal by existing ones;

Small size and rigid market forces limit financial possibilities for risk and R&D (research and development) and innovation activity(since R&D requires a sufficiently high minimum size enterprises). And although there are exceptions ( personal computer Apple was first developed in a garage), most small firms are not technically advanced or innovative.

product differentiation expands consumer choice;

strong competition keeps prices close to marginal costs, which are at the lowest possible level for differentiated products (albeit slightly higher than in a perfectly competitive market);

the bargaining power of an individual firm is relatively small, so that firms mostly obtain rather than set prices;

This is the most favorable market for buyers.

Disadvantages of the monopolistic competition market:

The small size predetermines the main disadvantages of this market structure.

Instability of market conditions and uncertainty of small business. If market demand is weak, this can lead to financial losses, bankruptcy, and exit from the industry. If market demand is strong, this increases the flow of new firms into the industry and limits the earning of higher than normal profits by existing ones.

Small firm sizes and harsh market forces limit financial opportunities for risk and R&D and innovation activity (since R&D requires a fairly high minimum enterprise size). While there are exceptions (the Apple personal computer was first developed in a garage), most small firms are not technologically advanced or innovative.

Question. 4. The behavior of a company in an oligopoly

In an oligopoly, large firms can behave in different ways: do not take into account the behavior of other producers, as in perfect competition; try to anticipate the behavior of other manufacturers; collude with other manufacturers (in many countries this is illegal). Large enterprises in an oligopoly can use four options for forming market prices.

Firstly, various competing prices. Each of the dominant firms can raise or lower the price without paying attention to the others.

Secondly, rigid monopoly prices based on an explicit or secret cartel agreement.

Thirdly, leading monopoly price, when firms wait for one of the existing firms to set the price and follow it.

Fourthly, a systematically formed price, the basis of which is the average production costs of large manufacturers.

The first attempt to create the theory of oligopoly was made by the French mathematician, philosopher and economist Antoine Augustin Cournot (1801-1877) back in 1838. However, his book, which outlined this theory, went unnoticed by his contemporaries. In 1863 he released new job“Principles of the Theory of Wealth”, where he outlined the old provisions of his theory, but without mathematical proof. Only in the 70s. XIX century followers began to develop his ideas.

The Cournot model assumes that there are only two firms in the market and each firm takes its competitor's price and output unchanged and then makes its decision. Each of the two sellers assumes that its competitor will always keep its output stable. The model assumes that sellers do not learn about their mistakes. In fact, these sellers' assumptions about the competitor's reaction will obviously change when they learn about their previous mistakes.

The Cournot model is shown in Fig. 10.10.

Rice. 10.10. Cournot duopoly model

Let us assume that duopolist 1 starts production first, and at first turns out to be a monopolist. His output (Fig. 10.10) is q1, which at price P allows him to extract maximum profit, because in this case MR = = MC = 0. For a given output volume, the elasticity of market demand is equal to one, and total revenue will reach a maximum. Then duopolist 2 begins production. In his view, the output volume will shift to the right by the amount Oq1 and align with the line Aq1. He perceives segment AD" of the market demand curve DD as the residual demand curve, which corresponds to his marginal revenue curve MR2. The output of duopolist 2 will be equal to half of the demand unsatisfied by duopolist 1, i.e. segment q1D", and the value of its output is equal to q1q2, which will give opportunity to get maximum profit. This output will be a quarter of the total market volume demanded at zero price, OD"(1/2 x 1/2 = 1/4).

At the second step, duopolist 1, assuming that the output of duopolist 2 will remain stable, will decide to cover half of the remaining unsatisfied demand. Based on the fact that duopolist 2 covers a quarter of market demand, the output of duopolist 1 at the second step will be (1/2)x(1-1/4), i.e. 3/8 of the total market demand, etc. With each subsequent step, the output of duopolist 1 will decrease, while the output of duopolist 2 will increase. Such a process will end with a balancing of their output, and then the duopoly will reach a state of Cournot equilibrium.

Many economists considered the Cournot model to be naive for the following reasons. The model assumes that duopolists do not draw any conclusions from the fallacy of their assumptions about how competitors will react. The model is closed, i.e. the number of firms is limited and does not change in the process of moving towards equilibrium. The model says nothing about the possible duration of this movement. Finally, the assumption of zero transaction costs seems unrealistic. Equilibrium in the Cournot model can be depicted through response curves showing the profit-maximizing levels of output that will be produced by one firm, given the output levels of a competitor.

In Fig. 10.11. response curve I represents the profit-maximizing output of the first firm as a function of the output of the second. Response curve II represents the profit-maximizing output of the second firm as a function of the output of the first.

Rice. 10.11. Response curves

Response curves can be used to show how equilibrium is established. Following the arrows drawn from one curve to the next, starting with output q1 = 12,000, will result in a Cournot equilibrium at point E, at which each firm produces 8,000 units. At point E, two response curves intersect. This is the Cournot equilibrium.

Unlike the Cournot model, in which both firms are equal players in the market, in the Stackelberg model one of them (leader I) is active, and the other (follower II) is passive. The follower gives the leader the opportunity to be the first to offer the desired quantity of goods on the market and considers the remaining unsatisfied industry demand as his market share.

This relationship between competitors may arise due to the asymmetric distribution of information: the leader knows the cost function of the follower, while the follower is not aware of the leader's production capabilities.

In such a situation, firms do not need to make strategic decisions. The leader's profit depends only on his output volume, since the follower's output volume is given by the equation of his reaction: q II = q II ( q I).

To visually compare the Cournot equilibrium with the Stackelberg equilibrium, the reaction lines of duopolists need to be supplemented with lines of equal profit (isoprofits). The isoprofit equation is obtained by solving the duopoly profit equation relative to the volume of output that provides a given amount of profit.

In Fig. Figure 10.12 shows how the isoprofits of firm II are located. Given the output of firm I, the corresponding point on the reaction line of firm II indicates its profit-maximizing volume of production. Firm II can receive the same profit with a larger or smaller output only if firm I reduces supply on the market, so the isoprofit peaks are located on the reaction line. The lower the isoprofit is, the greater the profit it represents, since it corresponds to a smaller output of the competitor.

By combining the isoprofit cards of duopolists, you can see combinations q I, q II, corresponding to industry equilibrium in the Cournot and Stackelberg models (Fig. 10.13). The intersection point of the reaction lines ( WITH) represents the equilibrium in the Cournot model, and the point of tangency of the follower's reaction line with the leader's lowest isoprofit represents the equilibrium in the Stackelberg model ( S I or S II).

From Fig. 10.13 it follows that the firm that becomes the leader increases its profit compared to what it received during competition according to the Cournot model: the leader moves to a lower isoprofit.

Advantages of Monopolistic Competition:

1) in conditions of monopolistic competition, a wide range of goods is produced, which ensures the satisfaction of consumer preferences of various buyers;

2) when prices for certain products are inflated, the buyer has the opportunity to easily and quickly find a substitute product;

3) very high competition in an industry that contributes to the improvement of manufactured products;

4) low capital investment to enter the market.

Disadvantages of Monopolistic Competition:

1) overpricing of products offered and underproduction of goods compared to perfect competition, although deviations from perfect competition in terms of the parameters under consideration are not as strong as in the case of a monopoly;

2) with monopolistic competition is not achieved production efficiency, since the price of the products offered is higher than the minimum value of average total costs, which indicates incomplete utilization of production capacity;

3) in the case of monopolistic competition, there is no allocative efficiency (the price set under monopolistic competition is higher than marginal costs);

4) high economic profits contribute to the influx of new firms into the market, which reduces excess profits to zero;

5) diversity is expensive for enterprises, because Producing several units of each type of product does not produce economies of scale.

SELF TEST

1. Imperfect competition is:

a) type market structure when the company is a price seeker;

b) the type of market structure when the firm is a price taker;

c) answers a) and b are correct);

d) there is no correct answer.

2. Magnitude gross income as sales volumes increase in conditions imperfect competition:

a) only increases;

b) only decreases;

c) remains unchanged;

d) increases up to a certain point and then decreases.

3. In conditions of imperfect competition, the values of average and marginal income:

a) match only for the first unit of product sold;

b) match only for the last unit of product sold;

c) always coincide;

d) do not match.

4. A type of market structure in which a company is identified with an entire industry that produces a unique, unparalleled product, while limiting the presence of competitors in the market with high, difficult-to-overcome barriers:

a) perfect competition;

b) monopoly;

d) oligopoly.

5. A characteristic feature of a monopoly is:

A) open access to information;

b) replaceable goods;

c) low entry and exit barriers;

d) the only giant company.

6. Under monopoly conditions the following is produced:

a) homogeneous goods;

b) differentiated product;

c) a unique product;

d) homogeneous and differentiated goods.

7. A market situation when one seller is opposed by only one buyer:

a) monopoly;

b) oligopoly;

c) monopsony;

d) bilateral monopoly.

8. An enterprise that, due to the novelty of the product, can become the only manufacturer for a certain time:

a) natural monopoly;

b) closed monopoly;

c) open monopoly.

9. Monopoly that arises in those industries in which, due to the peculiarities of the technology for the production of economic goods, the organization of production on the basis of only one enterprise is most effective:

a) natural monopoly;

b) closed monopoly;

c) open monopoly.

10. Monopoly arising as a result of restricting the activities of other firms in the market with the help of existing regulations:

a) natural monopoly;

b) closed monopoly;

c) open monopoly.

11. A situation where there are many manufacturers on the market and only one buyer who can, by manipulating the volume of purchases, reduce prices:

a) monopoly;

b) monopsony;

c) bilateral monopoly;

d) monopolistic competition.

12. If average variable costs are at the price level set by the monopolist, the firm:

a) receives excess profit;

b) receives economic profit;

c) incurs losses in the amount of fixed costs;

d) incurs losses in the amount of variable costs.

13. In Fig. 7.8. monopoly is represented.

In this case, the rectangle ATCP M AK indicates that the company receives:

a) excess profit;

b) only normal profit;

c) losses;

d) zero economic profit.

14. The state regulates natural monopolies by setting the price at:

a) average total production costs;

b) average variable production costs;

c) marginal costs;

D) higher than average total production costs.

15. Selling the same product different consumers at different prices:

a) product differentiation;

b) price discrimination;

c) answers a) and b are correct);

d) there is no correct answer.

16. There are three main conditions for the implementation of price discrimination. Specify the redundant one:

a) the firm must have a sufficiently high level of monopoly power;

b) the firm must be a price taker;

c) the buyer does not have the opportunity to resell the product or service to other consumers;

d) the seller can segment the market (divide consumers into groups according to certain characteristics).

17. Price discrimination, in which prices change depending on the quantity of goods purchased:

18. Perfect price discrimination, when different units of goods are sold at different prices to different buyers, facilitating the withdrawal of the entire consumer surplus (profit):

a) price discrimination of the first degree;

b) price discrimination of the second degree;

c) price discrimination of the third degree.

19. Price discrimination, which is based on the sale of goods at different prices for different groups of buyers:

a) price discrimination of the first degree;

b) price discrimination of the second degree;

c) price discrimination of the third degree.

20. The main advantage of a monopoly is that:

a) products produced by a monopolist company are, as a rule, of poor quality;

b) large scale production allows reducing production costs and saving resources;

c) the impressive profits of a monopolist firm do not contribute to investment in scientific and technological progress;

d) monopolistically high profits that persist for quite a long time do not contribute to the development of competition.

21. The main disadvantage of a monopoly is that:

a) the monopolist inflates prices for manufactured goods;

b) the incentive to increase production efficiency increases;

c) low barriers to entry into a monopolized market;

d) a monopolist produces more output than under perfect competition.

22. A type of market structure that combines the features of perfect competition and monopoly:

a) monopsony;

b) bilateral monopoly;

c) monopolistic competition;

d) oligopoly.

23. A characteristic feature of monopolistic competition is:

a) closed access to information;

b) a unique product;

c) high entry and exit barriers;

d) differentiated products.

24. In conditions of monopolistic competition, the number of firms in the industry:

b) two or three;

c) from two to ten;

d) many.

25. In conditions of monopolistic competition:

a) allocative efficiency is achieved;

b) allocative efficiency is not achieved;

c) efficiency is achieved in resource allocation;

d) production efficiency is achieved.

26. In Fig. Figure 7.9 shows equilibrium under conditions of monopolistic competition in the long term.

In this case, the company will receive:

a) economic profit;

b) excess profit;

c) losses;

d) only normal profit.

27. Product differentiation under conditions of monopolistic competition lies in the fact that firms in the industry produce:

a) identical goods;

b) similar but not identical goods;

c) absolute substitute goods;

d) homogeneous products.

28. Use non-price competition in conditions of monopolistic competition it is predetermined:

a) significant control over prices;

b) little control over prices;

c) low level of dependence on the consumer;

d) insignificant control over prices and a low level of dependence on the consumer.

29. The main advantage of monopolistic competition is that:

a) a wide range of goods is produced;

b) it is not easy to find a substitute product;

c) low competition in the industry;

d) high capital investment to enter the market.

30. The main disadvantage of monopolistic competition is that:

a) with monopolistic competition, production efficiency is achieved;

b) high economic profits contribute to the influx of new firms into the market, which increases excess profits;

c) diversity is cheap for enterprises;

d) there is an overestimation of the price of products offered and underproduction of goods compared to perfect competition.

Security questions

1. What are the characteristic features of monopoly and monopolistic competition?

2. What types of monopolies are there?

3. What barriers does a monopolist use to limit the entry of other economic agents into the market?

4. How does a monopoly differ from monopolistic competition?

5. How are price and output determined under conditions of monopoly and monopolistic competition?

6. What are the advantages and disadvantages of monopoly and monopolistic competition?

7. What are the reasons for the existence of price discrimination?

8. What are the reasons for the emergence of natural monopolies?

9. What is the role of the state in regulating natural monopolies?

Chapter 8.

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Types and characteristics of monopolistic competition

A striking example of this type of competition in Russia is the market mobile communications. There are many companies in it, each of which is trying to lure clients to them through various promotions and offers.

Article navigation

Market of monopolistic competition
Signs of monopolistic competition
Product differentiation
Advantages and disadvantages of monopolistic competition
Conditions for obtaining the maximum possible profit in the short-term period of monopolistic competition
Maximum profit in the long run of monopolistic competition
Efficiency and monopolistic competition

Monopolistic competition (MC) is one of the market structures with a large number of enterprises that produce differentiated products and control their cost for end consumer. Although this market model refers to imperfect competition, it is very close to perfect competition.

To put it simply, MK is a market ( separate industry), which brought together many different companies producing similar products. And each of them has a monopolist over its product. That is, the owner who decides how much, how, for how much and to whom to sell.

Market of monopolistic competition

This definition, or rather the basis of the concept itself, was presented back in 1933 by Edward Chamberlin in his book “The Theory of Monopolistic Competition.”

To properly characterize this market model, Let's look at this symbolic example:

The consumer likes Adidas sneakers and is willing to pay more money for them than for competitors' products. After all, he knows what he pays for. But suddenly the company that produces his favorite shoes raises prices three, five, eight... times. At the same time, similar shoes from another company are several times cheaper.

It is clear that not all Adidas fans can afford this expense and will look for other, more profitable options. What happens next? The company's customers are slowly but surely migrating to competitors who are willing to carry them in their arms and give them what they want for the price they can pay.

Let's figure out what MK really is. Let's try to convey it briefly. Yes, of course, the manufacturer has some power over the product he produces. However, is this so? Not really. After all, a monopolistic market model means a huge number of producers in each niche, which may turn out to be faster, more efficient and of better quality.

An unreasonably high cost of goods that satisfy the same need can either play into the hands or ruin the manufacturer. Moreover, competition in niches is becoming tougher. Anyone can enter the market. It turns out that all companies are sitting on a powder keg, but it can explode at any moment. So firms have to act in conditions of monopolistic competition using their full potential.

Signs of monopolistic competition

The market is divided between companies in equal parts.
The products are of the same type, but are not a complete replacement for anything. It has common features, similar characteristics, but also significant differences.
Sellers set a price tag without taking into account the reaction of competitors and production costs.
The market is free to enter and exit.

Essentially MK includes signs of perfect competition, namely:

A large number of manufacturers;
Failure to take into account competitive reactions;
No barriers.

The monopoly here is only regulation of the price of products for the end user.

Product differentiation

At the beginning of the article, we already said that under monopolistic competition, manufacturers sell differentiated products. What is this? These are products that satisfy the same user need, but have some differences:

quality;
manufacturing materials;
design;
brand;
technologies used, etc.

Differentiation is a marketing process used to promote products in the market, increase their value and brand equity. In general, this is a tool for creating competitiveness between manufacturers of certain things.

Why is a differentiation strategy useful? Because it makes it possible for absolutely all companies on the market to survive: both “established” enterprises and new companies that create products for a specific target audience. The process reduces the impact of resource endowment on companies' market share.

For stable operation, it is enough for an enterprise to determine its strong point (competitive advantage), clearly indicate target audience for which the product is being created, identify its need and set an acceptable price for it.

The direct function of differentiation is the reduction of competition and production costs, difficulty in comparing products and the opportunity for all manufacturers to take their “place in the sun” in the chosen niche.

Advantages and disadvantages of monopolistic competition

Now let’s look at the “medal” from both sides. So, in any process there are both advantages and disadvantages. MK was no exception.

Positive	Negative
A huge selection of goods and services for every taste;	Advertising and promotion costs are increasing;
The consumer is well informed about the benefits of the product items he is interested in, which gives him the opportunity to try everything and choose something specific;	Overcapacity;
Anyone can enter the market and bring their ideas to life;	A huge amount of unreasonable expenses and ineffective use of resources;
New opportunities, innovative ideas and a constant source of inspiration for large corporations. The emergence of competitors stimulates large companies make products better;	“Dirty” tricks are used, such as pseudo-differentiation, which makes the market less “plastic” for the consumer, but brings super-profits to the manufacturer;
The market does not depend on the state;	Advertising creates unreasonable demand, due to which it is necessary to rebuild the production strategy;

Conditions for obtaining the maximum possible profit in the short-term period of monopolistic competition

The goal of any enterprise is money (gross profit). Gross profit (Tp) is the difference between total revenue and total costs.

Calculated by the formula: Тп = MR - MC.

If this indicator is negative, the enterprise is considered unprofitable.

In order not to go broke, the first thing a seller needs to do is understand what volume of products to produce to obtain maximum gross profit, and how to minimize gross costs. In this scenario, under what conditions will the company receive maximum earnings in the short term?

By comparing gross profit with gross costs.
By comparing marginal revenue with marginal cost.

These are two universal conditions that are suitable for absolutely all market models, both imperfect (with all its types) and perfect competition. Now let's start the analysis. So, there is a market with crazy competition and an already formed price for the product. The company wants to enter it and make a profit. Quickly and without unnecessary nerves.

To do this you need:

Determine whether it is worth producing products at this price.
Determine how much product you need to produce to be profitable.
Calculate the maximum gross profit or minimum gross costs (in the absence of profit) that can be obtained by producing the selected volume of output.

So, based on the first condition, where revenue is greater than costs, we can argue that the product needs to be produced.

But not everything is so simple here. The short term has its own characteristics. It divides gross costs into two types: fixed and variable. The first type of company can bear even in the absence of production, that is, be in the red by at least the amount of costs. In such conditions, the enterprise will not see any profit at all, but will be “covered” by a wave of constant losses.

Well, if the amount of the total loss in the production of a certain amount of goods is less than the costs of “zero production,” the production of products is 100% economically justified.

Under what circumstances is it profitable for a company to produce in the short term? There are two of them. Again…

If there is a high probability of making a gross profit.
If the sales profit covers all the variables and part of the fixed costs.

That is, the company must produce so much goods that the revenue is maximum or the loss is minimal.

Let's consider three cases to compare gross profit with gross costs (the first condition for obtaining maximum profit in the shortest possible time):

profit maximization;
minimizing production costs;
closure of the company.

Profit maximization:

Three in one. Maximizing profits, minimizing losses, closing the company. The diagram looks like this:

Let's move on to comparing marginal revenue (MR) with marginal costs (MC) (the second condition for obtaining maximum profit in the short term):

MR = MC is the formula that determines the equality of marginal revenue with marginal cost.

This means that the product produced gives maximum profit with minimum costs. Characteristics of this formula are:

High income at minimal costs;
Profit maximization in all market models;
In some cases, production price (P) = MS

Maximum profit in the long run of monopolistic competition

A distinctive feature of the long-term period is the absence of costs. This means that if the company ceases to function, it will not lose anything. Therefore, by default there is no such concept as “loss minimization”.

Playing according to this scenario, the monopolist chooses one of the following lines of behavior:

profit maximization;
limits on price formation;
rent.

To determine the behavior of an enterprise, two approaches are used:

Long-term total revenue (LTR) = long-term total cost (LTC).
Long-run marginal revenue (LMR) = long-run marginal cost (LMC).

In the first case, total expenses are compared with total income in various variations of the production of a good and its price. The option where the difference between income and investment is maximum is best option behavior for the enterprise.

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