Short run output and price, Managerial Economics

SHORT RUN OUTPUT AND PRICE

In monopolistic competition, it's the product differentiation that permits its price without losing sales. 

Due to brand loyalty consumers will continue buying a particular product as preferred to all other brands in spite of increases in the price of that product.

If one firm lowers its price it may capture a few more customers therefore expanding its sales over and above the traditional customers.  Besides the product differentiation need not be physical, only the customers need to feel the products are different.

Generally the demand for one seller's product will be price elastic due to close substitutes.  If one firm raises its prices, TR will go down.  If the price is reduced there are possibilities of substantial increase in revenue because of capturing some customers from rivals.

The level of elasticity will depend on the strength of product differentiation.

Posted Date: 11/28/2012 5:30:54 AM | Location : United States







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