1. PRICING UNDER MONOPOLISTIC COMPETITION
Features
• Many sellers, each having an insignificant share in the total supply of the
product in the market,
• Product differentiation, products of various firms are similar but not
perfect substitutes.
• Easy entry and easy exit; production involves small investment costs and
unsophisticated technology, and thus any one could start production or
leave the industry without ant significant loss.
• The demand curve facing a monopolistically competitive firm slopes
downward from left to right
• The demand curve of a monopolistically competitive firm is highly though
not perfectly elastic

3. • A monopolistically competitive firm always produces socially sub-
optimal output both in the short as well as in the long-run. This is
evident from the definition of socially optimal output (where
P=MC) and the nature of the AR and MR curves
• A monopolistically competitive firm never operates at its minimum
AC (or always has an excess capacity0 in the long-run. This is
obvious from the firm’s long-run equilibrium position as presented
above. The AC curve is U-shaped, AR curve is falling, MC curve
intersects the AC curve at the latter’s minimum point, the firm
merely breaks-even in the long-run. For break-even, AC must equal
P (=AR). Since the AR curve is falling, the AC is falling, and since
falling AC precedes the minimum AC, the equilibrium output must
be less than the output at which AC is minimum. In figure 7.1 (b),
while OQ2 is the long-run equilibrium output, O Q3 is the output at
which AC is the least, and OQ2 is less than OQ3. The full capacity
output, by definition, is the one at which AC is the minimum.

4. PRICING UNDER PURE COMPETITION
• purely competitive market is characterised by a
large number of buyers and sellers , dealing in
homogeneous product, and easy entry and exit.
in view of these factors no buyer or seller has any
influence on the price and consequently each one
of them is price taker.
• who then determine the price? no individual
buyer or seller but all of them taken together,
called the" invisible hands" , determine the price.

5. The various firms in the industry can be
classified into four categories:
a)efficient (least-cost)and profit making
firms
b)efficient but breaking -even firms
c)inefficient but operating firms
d)inefficient and closed down firms

7. pricing under a pure monopoly
• A firm with monopoly has price-setting
power and will look to earn high levels of
profit.
• A pure monopolist is the sole supplier in an
industry and, as a result, the monopolist can
take the market demand curve as its own
demand curve. A monopolist therefore faces a
downward slope

8. • Assuming that the firm aims to maximise
profits (where MR=MC) we establish a short
run equilibrium as shown in the diagram
below.

9. • Not all monopolies are guaranteed profits -
there can be occasions when the costs of
production are greater than the average
revenue a monopolist can charge for their
products. This might occur for example when
there is a sharp fall in market demand (leading
to an inward shift in the average revenue
curve).

10. PRICING UNDER OBLGOPOLY
oligopoly market is characterized by the following features:
• A few sellers or a few ‘big’ sellers if there are many sellers;
• Standard or differentiated product; and
• Difficult but possible entry / exist.
Types of oligopoly
• homogeneous or standard oligopoly
• The heterogeneous oligopoly
The demand function for a firm’s product would behave the following
variables,
• Prices of rival firms’ goods
• Advertisement budgets’ of rival firms
• Styles and quality of rival firms goods and each of these additional
variables would enter with a negative signed coefficient in the
demand function