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The paper also explains the fact that given the transition from a monopolistically competitive firm to a monopoly, what will be the changes with regard to prices and output in both of these market structures. And finally the paper explains given the transition from a monopolistically competitive firm to a monopoly, what will be the changes with regard to prices and output in both of these market structures.
The price, output level, and the quality of the monopolistic competitor are resolved through “maximizing the difference between its revenue and its cost, where cost is measured exclusive of the rent on its product-specialized inputs” (Carson, 2006, p. 433). Such a business organization must have definite inputs that are specific to its definite product—as product differentiation is or else compatible with the perfectly competitive market—and the exclusivity of these inputs permits those producers to gain positive rent, yet in the long-term equilibrium. The addition of rent in the cost provides increment to the “traditional Chamberlinian solution”, where (“rent inclusive”) average cost lays tangent to the level of demand and thus downward-sloping. However, if rent is not included, average cost can be constant or even it can be upward-sloping at the equilibrium, and also, monopolistic competition does not necessarily induce ‘excess capacity or to production facilities that are too small’ (Carson, 2006, p. 433).
In this context, the company, called ‘Wonks’ will not produce the monopolistically competitive level of output which is largely based on the competitive market conditions. The firm will produce the level of output which is lower than the perfectly competitive amount of output; however, it will produce an output even lower than the monopolistically competitive level of output. Hence, ...