Week 3: Discussion Question

Most firms and businesses in our economy operate under monopolistic competition, and product differentiation in this market type is one of the main factors that lead to price differentiation. In addition, and because prices affect quantity demanded inversely (higher prices lead to lower quantity demanded, and lower prices lead to higher quantity demanded), marginal revenue (the additional revenue obtained from producing and selling an additional unit of output) will always be lower than prices on the demand curve because lower prices leads to lower revenue.

Because ease of entry is high in both perfect competition and monopolistic competition markets, and because making economic profits will always attract new producers (entrants), how do firms survive and make profits in those markets?

Provide an example of a firm or a small business from the real world that is surviving the dynamic nature of monopolistic competition and discuss some approaches they have used (or are currently using) to compete and survive in the market.

In addition, provide an example or a scenario from your personal (or professional) experience, an observation, a story that you have read, or an idea or a thought that you might have for practical, creative, and/or effective ways to minimize production costs in order to maximize profits.