Question

2. State the profit-maximizing conditions under monopolistic competition in the short-run

b) State the profit-maximizing conditions under oligopoly.

Answer 1

a) Just like a monopoly, a firm under monopolistic condition tries to maximize its profit by matching its marginal cost with its marginal revenue. At this point, the firm decides its output and set the price of the product in the market. But, unlike a monopoly, a firm under a monopolistic competition doesn't' earn a supernormal profit. SO, to maximize profit a firm under a monopolistic condition have to produce at a point where its MR=MC.

b) A firm under an oligopoly doesn't have to the motive to maximize its profit but to survive in the market. To do so they have a discontinued marginal revenue curve with a gap in between. A firm under an oligopoly will produce the quantity as long as the Marginal cost curve passes through the this discontinued part of marginal revenue curve.