According to what we have learned in class, Monopolistic Competition has a large number of firms, there are no barriers to entry, and there is product differentiation. Quality Control measures ensure product reliability and effectiveness. The Four Firm Concentration Ratio is the total percentage of revenue collected by the four biggest firms within a certain industry. So 100% would be a monopoly and anything under 40% would be monopolistic competition. The higher the percentage means there is less competition. Monopolistic Competitive companies are able to set their own price which is good because this allows them to be the expert in the field of business in which they are pursuing. The efficient use of pricing and marketing will allow for profit maximization as long as their Average Transaction Costs are above the demand for their product. Average Transaction Costs must intersect with Marginal Costs (Cost to make one more product) above this Demand curve. Setting the price is tricky and seems that it must be done cautiously and might require trail by error. This method of pricing is usually used to drive other competitors out of business but is not recommended for normal operations. There is a signifigant amount of Deadweight Loss using this diagram of Profit Maximizing. Profit Maximizing is always sought out but could maximizing profit also be a negative aspect of running a business? If a business operated at just under full maximization could it sell more product because of the lower price of the good?
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