A firm operating under monopolistic competition - a price maker - is facing an u

Question

A firm operating under monopolistic competition - a price maker - is facing an unexpected inventory buildup due to a weakening national economy.

(A) Describe the two key rules that the firm must consider in planning its output for the next 2 quarters.

(B) How is the selling price determined at the optimum level of output?

(C) How does this firm allocate output among its several plants?

(D) A monopoly will face a different situation from the firm discussed above; are there any differences in determining pricing for a monopolist vs. a firm under monopolistic competitor?

Explanation / Answer

If the monopolistic firm is facing the problem of inventory build up firm should take care that the prodution of goods for the next two quarters should be in such a way that they should meet the appropriate demand in the market that is optimum production, rather than producing surplus quantity of goods. In the case of optimum production the price of the goods should be determined in such a way that If the firm wants profit they can increse the price as it is monopolistic competetion.Since limited production firm can't get that profit so firm can increase the price to meet the production cost. Firm need to take active step like it should provide sufficient goods at the market where consumption of that good is maximum and firm can reduce the amount of goods at low consumption area If they want to increse the number of goods at better consumption market to get some profit. There are differences between price allocation by a monopolist and the firm working under monopolistic competitior. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.An individual or company that controls all of the market for a particular good or service. A monopolist chooses its output to maximize its profit. A firm is monopolist if it has no close competitors, and hence can ignore the potential reactions of other firms when choosing its output and price.

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