Competition and Entrepreneurship Monopolistic Competition

Question: Discuss about the Competition and Entrepreneurship Monopolistic Competition. Answer: Introduction: In the opinion of Assenza et al., (2015), it can be stated that there are larger number of producers under the monopolistically competitive market. The seller sale differentiated products under this type of market structure. Hence, it can be mentioned that the products are not identically substitutes to each other. On the other hand, the producers can charge the price and it is charged by the competitors. Therefore, product differentiation is the key factor, which can effectively define the market structure of monopolistic competition. According to Balistreri Rutherford (2013), it can be stated that monopolistic competitive market is the grouping of perfect competition and the monopoly. A number of firms can freely enter into the market under this type of market structure. On the other hand, it can be added that each firm is treated like a monopolist in the aggregate market, where the products are differentiated and closely substitutes. The demand curve for the products will be downward sloping. Moreover, this demand curve would reflect the price of the products. In the words of Baumol Blinder (2015), each of the organisations under monopolistic competition focused to maximise the profitability statement. In this context, it can be mentioned that each of the organisation would like to set their output level in such a way, for which marginal revenue is equivalent to marginal cost. As a result, the first order condition of profit maximisation can be explained as MR=MC and this condition is equivalent to the monopolistic competitive market. The major difference between these two types of market can be identified as marginal revenue curve relies on the residual demand curve in the place of market demand curve in the monopolisticallycompetitive market structure. On the other hand, Bertoletti Etro (2015) opined that residual demand curve under the monopolistic competition is nothing but the aggregate market demand of the net productivity of other sellers. Therefore, it can be inferred that monopolistic competition is a special type of market where there are a large number of producers. They are mainly aimed to sale differentiated products. Nonetheless, the products are these goods are not homogeneous in characteristics. In the points of Calvo Prez (2016), the demand curve of these goods is assumed to be elastic in nature. The reason behind the elastic demand curve can be explained as the sellers in the market sale differentiated goods. Moreover, it can be mentioned that the organisations are closely substitute to each other. Hence, it can be inferred that if one organisation increase the price of the goods, then most of the customers will get the opportunity to switch other products for purchasing. On the other hand, it can be stated that the demand elasticity of the products are not perfectly elastic. In this connection, it can be mentioned that there are small number of competitors under the monopolistically competitive market stru cture. The above diagram highlighted that the suppliers of the monopolistic competition are acted such as a price makers. This diagram explains that the organisation will produce at the level of Q. In this level, the marginal revenue would be equal to the marginal cost. This price level would be evaluated under a specific circumstance where the average revenue curve touches the estimated quantity. Moreover, Collier Venables (2014) highlighted that this situation under monopolistic competition would be occurred as the firms have the market power. This would reflect to gain the social dead weight loss of the firm. In the above diagram, the orange coloured shaded region can effectively highlight the amount of profits of the firm, and this is the short run earning of the organisation. The above figure shows that in the long run, the monopolistically competitive firms would be capable to produce up to a certain level, where the marginal cost curve would be able to touch the marginal revenue curve. On the other hand, the price of the goods can be identified as the quantity produced by the organisations would touch the average revenue curve. As a result, Collier Venables (2014) opined that in the long run competitive market, the organisations will break even. In addition, it can be observed that the monopolistically competitive firms would be efficient to earn profitability statement in the short run market. This would in turn make an impact on the long run. In the long run, the monopolistically competitive firms consider the monopoly like pricing and it can reduce the demand. This can increase the necessities average total cost. As per the statement of Erku?-ztrk Terhorst (2016), it can be mentioned that for the decrease in the demand of the goods and the rise in the cost of the products the average cost curve would be tangent at the level of profit maximising price of the goods and services. As a result, in this point there would occur two specific cases under monopolistic competition. Initially, the organisations under this type of market would be able to produce a surplus in the long run. In the next situation, the firms can break even, however, would not be able to earn organisational profits. From the above diagram it can be observed that the shift of demand curve under the monopolistically competitive firm would tend to move to long run. According to Feenstra (2016), it can be mentioned that if the organisations would be able to earn positive as well as higher economic profitability under this type of market structure, other organisations would get the opportunity to enter into the industry. As a result, it can be observed that each of the organisations would get lower amount of market share. More specifically, it can be mentioned that the market demand curve would shift towards the leftward. This shifting of the demand curve would be continuous when the break even situation would rise in the industry. On the other hand, Feng, Wang Zhang (2014) stated that other organisations outside of the market would not be capable to enter into this type of organisational competition. As per the concept of economic efficiency, the firms under the monopolistically competitive industry are performed similarly the firms under the monopolistic firms. In this purpose, it can be stated that the firms have the supremacy to determine the price of the goods. Hence, it can be inferred that the organisations are capable to set the prices what they have estimated for their goods without the influence of the market forces. This price of the goods can be identified at the level where the profit maximising level crosses the demand curve. This pricing level would be higher in the comparison with marginal cost of the firm. As a result, the customers need to compensate the price, which is higher than the pricing structure in the perfectly competitive type market structure. On the other hand, this would reduce the consumer surplus. Moreover, Kirzner (2015) opined that the producers of the monopolistically competitive market can produce lower quantity of products compared to the quan tity of production under the perfectly competitive type market. Therefore, it can be inferred that the profitability statement would be offset and the firms can earn higher profitability by charging larger prices. Therefore, the producer surplus would be reduced. This above diagram emphasizes that the monopolistically competitive firms create the social deadweight loss as well as the inefficiency, which can be represented by the orange coloured shaded region. In this context, it can be mentioned that the productive effectiveness arises when a firm utilise all of the resources in the effective manner. As per the statement of Lucas (2016), this situation occurs when the commodity price is identified with the help of the level of marginal cost. The marginal cost of the product is equal to the average cost of the goods. On the other hand, Nikaido (2015) opined that the firms also focused to control the entire process as the price of the goods is more compared to the marginal cost under monopolistic competition. This would in turn highlight the ineffectiveness of the market. This quantity can be produced if QM and the marginal cost curve touch each other. Similarly, it can be observed that the allocative efficiency would take place if the producti on level of the goods can maximises the social well being. This situation arises when the price of the goods is similar to the marginal benefits and also similar to the marginal cost. However, the price of the products under the monopolistically competitive market would be larger compared to the marginal cost. In addition, it can be stated that the market is not the allocative efficient. Industry where the monopolistic competition prevails In the points of Olabi (2016), it can be stated that restaurant industry can be an appropriate example, where monopolistic competition prevails effectively. In this connection, it can be mentioned that there are a large number of restaurants under this type of market structure and in addition, it can be added that there is no barriers to entry and exit. On the other hand, it can be mentioned that each of the restaurant are closely substitute to each other under monopolistically competitive market structure. Profit maximisation condition: As per the statement of Parenti, Ushchev Thisse (2017), it can be stated that the restaurants increase the price up to a specific level above in the comparison with the other restaurants with which it compete in the market. Moreover, it can be added that all of the restaurants are different from the others, and some of the individuals are willing to support in continuously. Under this condition, the restaurants would be able to charge the individuals and the specific price. Short run condition: A restaurant makes a competition with the other restaurants within the market and there are no barriers to entry or barriers to exit. As a result, it can be stated that the demand curve of the products of the market is downward sloping. In addition, it can be mentioned that the restaurant would increase the price in the comparison with the other competitors. Therefore, the visitors would visit to the other restaurants where the price of the products is usually lower. Therefore, the marginal revenue curve of the restaurants would lie below the demand curve is downward sloping. In addition, the marginal revenue of the additional food substances of the restaurant will be relatively lesser compared to the overall market price. Long run condition: According to Park et al., (2015), it can be mentioned that with the entry of new companies in the market, the availability of getting foods in the restaurants can be increased. If the demand for the food substances would reduce, then the demand curve for the restaurant would be more elastic. Therefore, the demand curve for the restaurants would move to the left. As a result, new restaurants would aim to enter into the market and they will enter into the market up to a certain limit where the restaurants will be able to make economic profitability. On the other hand, it can be observed that the zero solution will be observed when the demand curve for the restaurant will be tangent to the average total cost curve. Therefore, it can be inferred that the pricing structure of the restaurants would be reduced and the output level will also be reduced. The nature of the restaurants under the monopolistic competition can be explained as the following way: Each of the restaurants under the monopolistic competition would be able to take greater decision about the price and the level of output, which is based upon the foods and the cost of production. Knowledge regarding the market structure is widely spread within the participants. Nevertheless, it is unlikely to be perfect. Moreover, the customers have the opportunity to make a review regarding the food substances, which can be obtainable in the restaurants before the selecting the menus. Nevertheless, they would not be capable to value the taste and the quality of the restaurant. In the opinion of Phelan et al., (2017), it can be stated that the risks in the monopolistic competition is related with the decision making process, the entrepreneur has an essential role than the other competitors in the market. On the other hand, it can be mentioned that the participants in the market can freely enter or leave into the market. As a result, it can be mentioned that there would be no barriers to entry or barriers to exit. It can be noticed that there are four types of product differentiation under monopolistic competition. The first product differentiation is related with the physical product differentiation. In this case, the size, design, shape and the performance of the goods are related with the differentiated products. Second differentiation is associated with the packaging and the other promotional process. Next, human capital differentiation is depending upon the skills and the knowledge of the subordinates of the restaurants. Lastly, Roberts (2014) opined that the product differentiation is based upon the distribution process and in this process mailing order and the internet shopping will be considered. In the points of Roper, Love Bonner (2017), it can be mentioned that the firms under the monopolistic competition require to take the help of advertisements. Therefore, the customers or the visitors would get the clear information regarding the product specification and can recognise the differences among the products. Negative externalities In this study, it can be observed that Adani groups Carmichael coal mine is located in Queenslands Galilee Basin. Due to the performance of the organisation, the organisation has released harmful gases; therefore, third parties have been suffering from the negative externalities. In this connection, it can be stated that the first and the second parties are recognised as the producers and the consumers respectively. According to Schweinberger Suedekum (2015), it can be stated that negative externality is related with the cost or the benefits. This will in turn make an impact on the third party. They are not incurred cost or the benefit. Moreover, it can be added that negative externality is connected with the external cost. The above diagram highlights the effect of the negative externality. The optimal production quality has estimated by the Q2, here negative externality would reflect the output level. In this diagram, the shaded region would explain the deadweight loss of the society. On the other hand, the negative externalities, which are associated with the mentioned coal mine company, can be discussed in the following manner: It can decrease the life expectancy as the company release several harmful gases. These gases are such as ozone, sulphur dioxide, heavy metals. These gases are very harmful for individuals health. This would make an effect on the respiratory system and they would be admitted in the hospitals. Apart from this, the individuals would suffer from serious diseases such as lungs cancer, ataxia, renal dysfunction etc. These harmful gases also reduce the cultivation of crops of this place. Therefore, the fertility of the land would be decreased. Moreover, Stiglitz Rosengard (2015) cited that the ecosystem and the balance of the environment would be degraded. Apart from this, it can be added that Adani groups operation also raise the pollution in the air and this is identified as the negative externality. On the other hand, it can be mentioned that individuals, who live outside of the surroundings, are forced to pay for the pollution. Negative externalities also increase the medical bills and the quality of life would be decreased. Hence, the coal mining of this organisation would lead to the negative cost on the individuals. Furthermore, Zhelobodko et al., (2012) opined that Adani Groups has released green house gas and it would make an issue in the environment. As per the review of the report, it can be identified that Adani group has released sulphur near about 145 million tons. As a result, it can be inferred that due to the emissions of gravely toxic, the water would be polluted. As per the statement of Roberts (2014), negative externality has adverse impact on the expansion of the economic function. Hence, external diseconomy would reflect the environment by increasing the level of pollution. The above figure shows the effect of the negative externality. The coal industry is operated in the competitive market. In this connection, it can be noticed that marginal social cost is larger than the marginal private cost. Marginal social cost is higher due to the amount of external cost. Moreover, it can be added that the marginal benefits is related with the function of coal mining. Hence, the marginal social cost would similar to the marginal private benefit. The above figure depicted that if the individuals would consider their own private cost, then it will end with the price level P1 and quantity Q1. In this purpose, individual would not consider the higher effectual price P2 and the effective quantity Q2. The social cost is larger than social benefit. Individuals would be better off between the quantity of Q1 and The government can improve the operational function of Adani groups. In this study, importance of development of the environmental recompense mechanism has described, which can reduce the negative externality. On the other hand, ecological services have a specific economic valuation. Therefore, it would exchange the perfectly competitive market. Moreover, market failure is also associated with the operation of coal mining. It can optimally supervise the performance of resource developers to restore the locality. Therefore, the relationship between the ecological as well as environmental balances would be improved. References Assenza, T., Grazzini, J., Hommes, C., Massaro, D. (2015). 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