What is Monopolistic Competition? If a local grocery store were to open a few miles away from my store, my profits are likely to
decrease a large amount because the store is close by and it’s branded. My products would
become elastic and I would have to decrease my prices , which then leads to a decrease in
output. I would decrease my prices because the point at which the profit-maximizing level of
output would decrease as the demand decreases for my products and shifts left on a graph. I
would have to decrease my output to prevent the marginal cost curve from rising above the
demand curve. My profits would decrease because my profit-maximizing level of output
decreased as demand falls. Profits change because the level of demand determines the best
point at which your marginal costs are outweighed by the marginal revenue to maximize profits;
but, the costs and revenue fluctuate based on many factors including demand, prices, rent,
employee wages, and so on. To continue maximizing profits against the new store, I could
promote discounts and coupons, sell new products, and advertise through television or posters.
Since monopolistic competition is based on product differentiation, providing a variety of new and
innovative products may be the best way to attract consumers and increase demand.

What is Monopolistic Competition?

The new grocery store will effect the demand of the previous grocery store. Therefore, the
previously existing grocery store will reduce demand and price. The new store drives down the
demand and the price of the old store in short term. In the long run, the stores will be able to
make their product unique and can decide to price higher or lower and the consumers can decide
to purchase whatever good they like. This will make the demand curve shift to the left and drive
down the price. The profits will be effected as the demand and price is shifted down. This
situation is great for the consumer as the prices get driven down. Additionally, the shopper has
more choices as where to shop. One thing I could do to help my store become adjusted to the
new store showing up is making a membership for my store. For example, I could sell yearly
memberships for $40 or $50 a year and lower my prices. Many shoppers may find the
membership holds value with its exclusivity and value the low prices. This is a business strategy
that places like Sam’s Club and Costco follow and it seems to work for them. APA style