Lconomlcs

The Iollowing are the Ieatures or characteristics oI monopolistic competition :-

1. Large Number of Sellers

There are large number oI sellers producing diIIerentiated products. So, competition among
them is very keen. Since number oI sellers is large, each seller produces a very small part oI
market supply. So no seller is in a position to control price oI product. Every Iirm is limited
in its size.

2. Product Differentiation

It is one oI the most important Ieatures oI monopolistic competition. In perIect competition,
products are homogeneous in nature. On the contrary, here, every producer tries to keep his
product dissimilar than his rival's product in order to maintain his separate identity. This
boosts up the competition in market. So, every Iirm acquires some monopoly power.

3. Freedom of Entry and Exit

This Ieature leads to stiII competition in market. Free entry into the market enables new Iirms
to come with close substitutes. Free entry or exit maintains normal proIit in the market Ior a
longer span oI time.

4. Selling Cost

It is a unique Ieature oI monopolistic competition. In such type oI market, due to product
diIIerentiation, every Iirm has to incur some additional expenditure in the Iorm oI selling
cost. This cost includes sales promotion expenses, advertisement expenses, salaries oI
marketing staII, etc.
But on account oI homogeneous product in perIect competition and zero competition in
monopoly, selling cost does not exist there.

. Absence of Interdependence

Large numbers oI Iirms are diIIerent in their size. Each Iirm has its own production and
marketing policy. So no Iirm is inIluenced by other Iirm. All are independent.

6. Two Dimensional Competition

Monopolistic competition has two types oI competition aspects viz.
i. !rice competition i.e. Iirms compete with each other on the basis oI price.
ii. Non price competition i.e. Iirms compete on the basis oI brand, product quality
advertisement.
. Concept of Group

In place oI Marshallian concept oI industry, Chamberlin introduced the concept oI Group
under monopolistic competition. An industry means a number oI Iirms producing identical
product. A group means a number oI Iirms producing diIIerentiated products which are
closely related.

8. Falling Demand Curve

In monopolistic competition, a Iirm is Iacing downward sloping demand curve i.e. elastic
demand curve. It means one can sell more at lower price and vice versa.
2.
It is important to note that perIect competition is a suIIicient condition Ior allocative and
productive eIIiciency, but it is not a necessary condition. Laboratory experiments in which
participants have signiIicant price setting power and little or no inIormation about their
counterparts consistently produce eIIicient results given the proper trading institutions.
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The diIIerence between GD! (Gross Domestic !roduct) and GN! (Gr oss National
!roduct) is that GN! includes net Ioreign income rather than net export and imports.
Essentially GN! adds net Ioreign investment income.

GD! measures the nation`s economy`s perIormance because it is determined by the market
value oI all Iinal goods and services made within the borders oI the nation. GD! is Iocused
on output rather than who produced it, GD! measures all domestic production.

GD! (Gross Domestic !roduct) C I G (X M)

GN! is basically the GD! oI the country plus income earned Irom overseas investments by
residents, minus income earned within the domestic economy by overseas residents. GN! is
Iocused on who owns the production regardless oI where the production takes place. GN!
calculates the value oI output produced by the people (nationals) oI the region.

The more diIIerent GD! and GN! are, the more the country is involved in international trade
and Iinances. A great example oI this would be Japan.
4
There are three primary cost Iactors that need to be considered by small businesses when
determining the prices that they charge Ior their goods or services. AIter all, price alone
means little iI it is not Iigured within the context oI operating costs. A company may be able
to command a heIty price Ior an item, only to Iind that the various costs oI producing and
delivering that item eliminate most or all oI the proIit that it realizes on the sale. It should
also be noted that service businesses oIten Iind it more diIIicult to accurately gauge their
costs, especially in the realm oI employee hours. A Ireelance copyeditor may Iind that one
2,500-word article takes twice as long to complete as another article oI the same size because
oI diIIerences in quality that are oIten diIIicult to anticipate ahead oI time.
LABOR COSTS Labor costs consist oI the cost oI the work that goes into the manuIacturing oI
a product or the execution oI a service. Direct labor costs can be Iigured by multiplying the
cost oI labor per hour by the number oI employee-hours required to complete the job.
Business owners, however, need to keep in mind that the "cost oI labor per hour" includes not
only hourly wage or salary oI the relevant employees, but also the costs oI the Iringe beneIits
that those workers receive. These Iringe beneIits can include social security, retirement
beneIits, insurance, unemployment compensation, workers compensation, and other beneIits.
MATERIAL COSTS Material costs are the costs oI all materials that are part oI the Iinal
product oIIered by the business. As with labor, this expense can apply to both goods and
services. In the case oI goods, material costs reIer to the costs oI the various components that
make up a product, while material costs associated with services rendered typically include
replacement parts, building parts, etc. A deck builder, Ior example, would include such items
as lumber, nails, and sealer as material costs.
OVERHEAD COSTS Overhead costs are costs that cannot be directly attributed to one
particular product or service. Some business consultants simply reIer to overhead costs as
those business expenses that do not qualiIy as labor costs or material costs. These costs
include indirect expenses such as general supplies, heating and lighting expenditures,
depreciation, taxes, advertising, rental or leasing costs, transportation, employee discounts,
damaged merchandise, business memberships, and insurance. A certain percentage oI
employees usually Iit in this category as well. While the wages and beneIits received by an
assembly line worker involved in the production oI a speciIic product might well qualiIy as a
labor cost, the wages and beneIits accrued by general support personneljanitors, attorneys,
accountants, clerks, human resource personnel, receptionistsare included as overhead.
Overhead expenses are typically divided into two categoriesIixed expenses and variable
expenses. Fixed expenses are regular (usually monthly) expenses that will not change much,
regardless oI a company's business Iortunes. Examples oI Iixed expenses include rent,
utilities, insurance, membership dues, subscriptions, accounting costs, and depreciation on
Iixed assets. Variable expenses are those expenses that undergo greater Iluctuation,
depending on variables such as time oI year (Ior seasonal businesses), competitor advertising,
and sales. Expenses that are more heavily predicated on company revenues and business
owner strategies include oIIice supplies, mailing and advertising, communications (telephone
and Fax bills), and employee bonuses.
COST OF GOODS SOLD One oI the most important tools that accountants and entrepreneurs
use to gauge the health oI businesses is the "cost oI goods sold." This Iigure is in essence the
business's total cost oI manuIacturing the products it sells orin the case oI retail Iirmsits
total expenditures to purchase products Ior resale. Delivery and Ireight charges are typically
included within this equation. Cost oI goods sold provides business owners with a rough
measurement oI their gross proIit margin. Th999999e Iigure usually bears a close relationship
to sales, but it may vary signiIicantly iI increases in the prices paid Ior merchandise cannot be
oIIset by increases in sales prices, or iI proIit margins swell because oI special purchase deals
or sudden surges in product popularity.

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Statistics
.
Short note
Cr|t|ca|a|ue
A number which causes rejection oI the null hypothesis iI a given test statistic is this number
or more, and acceptance oI the null hypothesis iI the test statistic is smaller than this number.



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Nonparametric Test:
This covers techniques that do not rely on data belonging to any particular distribution. These are the techniques that do not
assume that the structure oI a model is Iixed. Typically, the model grows in size to accommodate the complexity oI the data.
In these techniques, individual variables are typically assumed to belong to parametric distributions, and assumptions about
the types oI connections among variables are also made. The disadvantage is that nonparametric tests are not as eIIicient; Ior
a given data set the nonparametric test will give a higher p-value. Nonparametric Tests include: Friedman's Test, Kruskal
Wallis Test, Levene's Test, Mann Whitney Test, Mood's Median Test, Sign Scores Test, Wilcoxon Rank Sum Test and
Wilcoxon Signed Rank Test.