Monopolistic Competition demand curve?

Because of competition - many producers-participants in the market supply services/goods above profit-maximizing quantity (and below prof/max price). so for competitive markets demand curves usually viewed at more elastic part (there of course may be inelastic segments but due to competition it usually far away from current position).

In the longer-run other producers seeing that someone is making high profits will do all the best (in most cases) to enter the market, so consumers will be able to switch to substitutes - and demand curve will become more elastic.

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Monopolistic Competition demand curve?

Why is the firm’s demand curve flatter than the total market demand curve in monopolistic competition? Suppose a monopolistically competitive firm is making a profit in the short run. What will happen to its demand curve in the long run?

Monopolistic competition is a common market form. Many markets can be considered monopolistically competitive, often including the markets for restaurants, cereal, clothing, shoes and service industries in large cities.

Monopolistically competitive markets have the following characteristics:

* There are many producers and many consumers in a given market.

* Consumers perceive that there are non-price differences among the competitors' products.

* There are few barriers to entry and exit.

* Producers have a degree of control over price.

The characteristics of a monopolistically competitive market are almost the same as in perfect competition, with the exception of heterogeneous products, and that monopolistic competition involves a great deal of non-price competition (based on subtle product differentiation). A firm making profits in the short run will break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This gives the company a certain amount of influence over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.

A monopolistically competitive firm acts like a monopolist in that the firm is able to influence the market price of its product by altering the rate of production of the product. Unlike in perfect competition, monopolistically competitive firms produce products that are not perfect substitutes. As such, brand X's product, which is different (or at least perceived to be different) from all other brands' products, is available from only a single producer. In the short-run, the monopolistically competitive firm can exploit the heterogeneity of its brand so as to reap positive economic profit (i.e. the rate of return is greater than the rate required to compensate debt and equity holders for the risk of investing in the firm). One possible effect of advertising on a firm's long run average cost curve when earning an economic profit in the short run is to raise the curve.

In the long-run, however, whatever distinguishing characteristic that enables one firm to reap monopoly profits will be duplicated by competing firms. This competition will drive the price of the product down and, in the long-run, the monopolistically competitive firm will make zero economic profit (i.e. a rate of return equal to the rate required to compensate debt and equity holders for the risk of investing in the firm).

Unlike in perfect competition, the monopolistically competitive firm does not produce at the lowest attainable average total cost. Instead, the firm produces at an inefficient output level, reaping more in additional revenue than it incurs in additional cost versus the efficient output level.

Monopolistic firms are price setters unlike firms in perfect competition which are price takers. In perfect competition, consumers can easily switch firms if the price is too high. The price elasticity of demand is hence higher in this case.

Under a monopoly, the firm can tinker with prices a little more and people will have to pay.

Demand Curve In Monopolistic Competition

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