"Running head: MASTER OF INTERNATIONAL BUSINESSMaster of international businessName of the studentName of the UniversityAuthor note:MASTER OF INTERNATIONAL BUSINESS1Introduction:According to Roberts (2014), monopolistic competition is said to exist where thereare many firms in the market, but each firm produces a product that is slightly differentiatedthan that of others. In this perspective, each firm sells a version of the product that differs inquality, appearance or reputation. Moreover, each firm is the sole producer of its respectivebrand (Nikaido, 2015). As a result, there are some distinct characteristics which make itseparate from other market structures.In this perspective, the mining industry in Australia is one of the significant examplesof monopolistic competition market structure which earns a massive amount of profit. Thismining industry generates approximately 21.6% profit and wealth of Australia. On the otherhand, one of the major organizations of the mining industry, BHP Billiton earns a significantamount of profit approximately $14.7 billion in the last year. Furthermore, Rio Tinto alsomakes a huge profit which is near about $4.88 billion (Fitzgibbon, 2016). Apart from this, the Carmichael coal mine by Adani Group which is located in GalileeBasin of Queensland has suffered a harsh condition of negative externalities. These negativeexternalities in production would lead to the situation of market failure to this organization.In the words of Zhelobodko, Kokovin, Parenti & Thisse (2012), the market failure occurswhen the optimum allocation of resources cannot be achieved through the market system.When the industry faces negative externality or external diseconomies of production, then themarket failure is the obvious outcome which leads to inefficient allocation and uses of scarceresources.In this research essay, the behavior of the firms under monopolistic competition hasbeen stated based on the short run and long run profit or loss along with the allocative andproductive efficiency of the firms. Moreover, one of the imperative monopolistic industries of MASTER OF INTERNATIONAL BUSINESS2Australia, the mining industry has been briefly discussed along with the nature of the firmsand its impact on the consumers. Lastly, a thorough discussion has been presented in the factof negative externalities and market failure of Carmichael coal mine by Adani Group. Discussion:The structure of the firms under monopolistic competition has been critically analyzedin this context.As argued by Nocco, Ottaviano & Salto (2014), the monopolistic competitionmarket structure is the combination of perfect competition and monopoly. As a result, thecharacteristic of this type market is enriched with the above stated two market structures. Inthe words of Assenza, Grazzini, Hommes & Massaro (2015), a large number of firms existsin the monopolistic market structure. Most of the firms produce differentiated products. Inspecific, a product of one firm is totally different from products of other firms in the industryqualitatively. Moreover, all the firms can enter and exit the market freely which is a sign ofperfect competition. On the other hand, according to Venables & Haaland (2016), each and every firm isindependent in taking decisions relating to changes in the price and output of their productswhich is similar nature of a monopoly. In this perspective, differentiation grants each firmsome monopoly power whereas the presence of many close substitutes provides competition.Apart from this, as opined by Dhingra & Morrow (2012), the collection of firms sellingclosely related but unique product is called a “product group” rather than an industry. Thisgroup has high own and cross price elasticity. Thus, if one firm increases its price, it will losesome of its customers but not all its customers. On the contrary, as per the view of Park,Cachon, Lai & Seshadri (2015), if the firm lowers its price it will substantially increase itssells by attracting customers from other firms. This is done by advertising, adding some freegifts with the products and persisting uniqueness to the brand. MASTER OF INTERNATIONAL BUSINESS3Under monopolistic competition market structure, two types of demand curves exist.One is proportional demand curve (DD) which shows the actual sells of the firm at each priceafter accounting for the price adjustment by other firms. On the other hand, the other isperceived demand curve (dd) which depicts the quantities that a typical firm expects to sell ateach price for ignoring all possible reaction of the other firms (Haaland & Venables, 2014).In this perspective, it can be notified that both the demand curves are downward slopingwhereas perceived demand curve is more elastic than proportional demand curve. Figure 1: Unstable short run equilibrium of monopolistic competitionSource: (As created by author) The short run profit or loss situation can be explained with the help of the above figure.In this figure, the market price is “OP1” and “dd” curve is drawn given its market share “DD”curve. Now, in the words of Bagwell & Lee (2015), the short run profit maximizationcondition is MR = MC which is shown by the point E. As a result, firm’s equilibrium priceand output are OP and OQ respectively. It is clearly seen from the figure that OP is less thanthe market price OP1 which is charged by all firms other than this particular firm. In this "