Monopolistic Competition is an oxymoron
- it is like a boxing match with only one boxer
- there is no competition (although obviously there is)
Short Term equilibrium is when the supplier has adjusted his price to
get the maximum 'surplus' or profit
- ie: the biggest area above the supply curve, and below the price line
(on the left hand side - pure geometry)
The price line is where the supplier puts it
- because it is a monopoly the supplier can choose his price
In the long term the supplier can shift his 'supply curve'
- typically by building another factory
- that involves the supply curve moving rightwards
- cloning factories ... or cloning costs
Yet again, assuming profit maximization is the goal, it is maximizing
the area between/above the supply curve and the price line.
However, 'Demand Pricing' as used by say telecom companies, allows the
supplier to get at the profit *above* the price line, yet to the left
of the point where the price line meets the supply curve.
This is achieved by 'Price Discrimination'
Things get even more complicated if the US economist Joe Schumpeter's
idea is correct, that profits allow companies to invest in research
that _lowers_ the supply curve.
The clarification is that the answer depends on who is asking the question.
- or rather, what does your tutor/teacher expect you to answer
- the 'real' answer is not always the 'right' answer |
