Microeconomics Essay Example | Topics and Well Written Essays - 2000 words - 5

Microeconomics - Essay ExampleThis paper discusses the concept of monopolistic competition using a cast of theories and real data. It also presents an existing case where specific aspects of monopolistic competition can be highlighted.Monopolistic competition refers to a market characterized by many another(prenominal) firms that offer similar products but not identical. The products and services can be considered as substitutes but not complete identical to each other. This aspect instrument that the cross-price elasticity of demand is huge but not infinite. The firms in this kind of competition can enter the market freely as well as exit freely when they please. It is effortless for new organizations to enter the market with own brands. Similarly, firms that have been in the market for long can also leave when their products convey unprofitable (Morton & Goodman, 2003203). Monopolistic competition is like a monopoly because the organizations in this market have a downward-slopi ng demand curve meaning that the prices exceed the borderline cost. Organizations that exist in monopolistic competition markets have similar rules to monopolies in terms of profit maximization. They choose the output level where the marginal cost and the marginal revenue ar similar and they set their prices by looking at the demand curve so that the goods produced must be bought by the customers (Zhelobodko, Kokovin, Parenti & Thisse, 20122765)There are different theories that explain monopolistic competition. First, the Krugman model (1980) offers a formal description of the profits gained from a particular form of trade in the absence of comparative degree advantage (Bertoleti & Etro, 2014 459). This model was branded a new trade theory because it influenced a lot of research on trade and industrial organization amid the 1980s and 1990s. The Krugman model explains that product differentiation at the firm level leads to monopolistic competition because such competition comes ab out when