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Write a 2 page essay on Microeconomics: monopoly.Download file to see previous pages... Similarly, the curve is less elastic than purely competitive firms, because unlike pure competition the firms lo
Write a 2 page essay on Microeconomics: monopoly.
Download file to see previous pages...Similarly, the curve is less elastic than purely competitive firms, because unlike pure competition the firms located in monopolistic competitive industry differentiate their products on the basis of various factors discussed above. This means that other firms are producing close substitutes for a product but not perfect substitutes. As a result of which, a firm has some degree of power of what price it charges to its consumers and hence the demand curve is less elastic than a purely competitive firm.
The firm is producing the right amount of output at a point where its MC = MR. Although, firm is making a loss, it should continue to produce as it covering it's average variables and some part of fixed costs. At least, in the short-run it should continue to produce the same amount of output because if it ceases to produce, the loss will rise-up to $50, which is greater than the loss it is bearing at the moment. Therefore, a rational decision would be to continue to produce as long as firm is covering its average variable costs.
