Monopolistic competition graph , characteristics & examples
We can identify four major types of market structures. They are perfect competition, monopolistic competition, oligopoly, and monopoly. To see…
monopolistic competition graph
Monpolistic Competition Graph
Monopolistic Competition Graph – Profit in the Short Run
A monopolistic competitive company can earn economic profit or supernormal profit in the short run. To read more about the short run, kindly click here. In the short run, monopolistic competitive companies produce with an excess capacity. Monopolistic competition graph in short run will present as follows.
According to the above graph 1 at point E, marginal cost (MC) equals marginal revenue (MR). The amount of quantity that relates to this point (E) is Qf units. So, the firm produces Qf units. At the Qf units of production, the average cost per unit (AC) is “B” and the average revenue per unit (AR) is “A”. We can see that here AR is greater than the AC. So, we can calculate the total profit of the firm by multiplying the number of Qf units from the difference between AR and AC. In other words, ABCD rectangular area presents the amount of supernormal profit of the firm.
Monopolistic Competition Graph – Profit in the Long Run
monopolistic competitive companies earn zero economic profit in the long run. To read more about the short run, kindly click here. New companies see the economic profit of the existing firms in the short run and as a result of the lower level of market entry barriers, new firms enter the market. Then the market output is increased and the market price is reduced. These firms eliminate the economic profits of existing firms and some firms in the market earn economic losses in the short run. So, firms who earn economic losses exit from the market, and in the long run all the firms earn zero economic profit. Monopolistic competition graph in long run will present as follows.
According to the above graph, at point C, marginal cost (MC) equals marginal revenue (MR). The amount of quantity that relates to this point (C) is Qf units. So, the firm produces Qf units. At the Qf units of production, the average cost per unit (AC) is “B” and the average revenue per unit (AR) is also “B”. We can see that here AR equals to the AC. So there is no any economic profit or economic loss for the particular organization.