Price Determination in Monopolistic Competition

 Monopolistic is actual situation of market. There is rare situation of perfect competition and monopoly in real business environment. In monopolistic competition both monopoly and perfect competition features will add in monopolistic competition. 

It is the situation of market in which lots of sellers but every seller's product is different from other seller on some basis. This difference is called product differentiation. It may be on the basis of brand, trade market, quality or provided services to customer. For example, Detergent powder for cloth washing. There are lots of companies selling it but different on the basis of their quality and brand. So, same brand, other company can not make. So, monopoly is in brand but there is lots of substitute of single brand, so, this some competition between brand of company. So, monopolistic competition will exist. 

Price determination and equilibrium in Monopolistic competition 

In short period

It is that time, when supply can increase only existing capacity when demand will increase. There is no time to increase or decreased fixed assets of production. So, in short period, firm will equilibrium to sell the good at the price where

marginal cost = marginal revenue and marginal cost curve cut marginal revenue curve from below. It that time, there will three situation

Super normal profit

Normal profit

If Production level MC = MR and if AR = AC, he will get normal profit 

Minimum loss

If demand is so low in short period, he has to decrease price. He will produce upto that period where he will get average variable cost. 

AR = AVC

AC > AR

And equilibrium will be where MR = MC