Production and Operations Management Communities

Questions: Describe the process by which profits or losses are eroded Comment on productive and allocative efficiency of firms in the model. Choose an industry where monopolistic competition prevails, illustrate and evaluate the behaviour of firms in the market. Answers: Introduction: As per the statement of Feenstra (2016), it can be mentioned that in the monopolistically competitive type market structure, there exists a large number of producers. These producers sale differentiated products. Therefore, it can be stated that the goods and services are not substitutes to each other. The sellers also able to set out the price and the competitors can also reflect their behavior on the pricing strategy. Hence, it can be inferred that product differentiation is the major key determinant to determine the market construction of the monopolistic competition. In the points of Balistreri and Rutherford (2013), it can be mentioned that the market under the monopolistic competition is the collection of perfect competition and the monopoly. The companies participate can freely enter into the market under monopolistic competition. In addition, it can be added that under the aggregate market structure, each firms are acted like a monopolist. Here, the manufacturing goods are differentiated but closely substitutes. The demand curve is also downward sloping. The demand curve of the products can also determine the price of the goods. According to Kirzner (2015), it can be mentioned that each of the companies aim to maximize their profits under monopolistically competition. In this connection, all firms focused to set the output level in such a manner that marginal cost of the market is similar to the marginal revenue. Therefore, the first order condition fir maximize the profit can be described as MR=MC. This is also similar to the market of monopolistic competition. However, the major difference among monopolistic competition and monopoly can be explained as in monopolistic competition, the marginal revenue curve lies above the residual demand curve in the position of demand curve of the market of monopolistic competition. Moreover, Bertoletti and Etro (2015) pointed that residual demand curve in monopolistic competition can be explained as the aggregate market demand curve; it is the net productivity of the producers. In the other words, it can be mentioned that monopolistic competition is a type of market, where there exist a large number of sellers. These sellers focused to sale different type of goods. However, the products are not perfectly substitutes or homogeneous in nature. In the words of Stiglitz Rosengard (2015), the market demand curve is of elastic in nature. In this context, it can be stated that the sellers sale differentiated goods, for which demand curve is elastic in nature. On the other hand, it can be observed that as the firms are closely substitute to the others; therefore, if one firm enhances their prices of the goods, then the consumers will get the chance to switch the firms in order to purchase the goods. However, Collier and Venables (2014) criticized that the demand elasticity of the goods and services under this type of market is not perfectly elastic. Therefore, it can be noticed that there are a small number of competitors under monopolistic competition. The above figure shows that the suppliers of the monopolistically competitive market are supposed to be price makers. The firms will produce at the point of Q. In this level, the marginal cost and the marginal revenue would be similar. The price would be estimated at the point where quantity of the selling products touches the average revenue curve. This situation arises as the participants have the power to control the market under this type of market structure. With the help of this situation, the social dead weight loss can be determined. On the other hand, the green colored shaded region shows the amounts of profits of the firms. This situation has occurred in the short run market. The above figure showed that the firms would be capable to manufacture up to that level where the long run marginal cost curve would touch the marginal revenue curve under the long run monopolistic competition. As per the opinion of Assenza et al., (2015), it can be mentioned that price of the goods would be estimated where the average revenue curve and the quantity crossed each other. As a result, it can be mentioned that the long run companies would break even. In addition, it can be stated that the monopolistic firms would earn their profits in the short run, the effect of monopoly pricing can lowering down the demand in the long run. This would in turn enhance the requirements for the participants to create a differentiation in the products. This will in turn raise the average total cost. As opined by Feenstra (2016), it can be mentioned that decrease in the demand and the increase of cost would in turn make the long run average cost tangent at the point of profit maximizing price of the goods. As a result, this situation has two implications. Firstly, the organizations under the monopolistic competition would produce surplus in the long run. Next, the monopolistically competitive firms would be able to break even under long run and can also earn the economic profitability. The above diagram depicted the shifting of the participants to the long run equilibrium. In the points of Feng, Wang and Zhang (2014), it can be mentioned that if the companies have earned positive as well as higher economic profitability in the monopolistically competitive market, other participants would get the chance to go into the competition. As a result, it can be observed that the market demand curve under the monopolistically competitive market would move towards the leftward. This shifting of demand curve would be continuous until the break even condition would occur within the market. On the other hand, Schweinberger Suedekum (2015) cited that other participants would not be permissible to enter into the marketplace. In the concept of economics, it can be mentioned that the firms of the monopolistically competitive firms are treated as the monopolistic firms. It is identified that the firms have the market power to determine the price of the goods. Hence, it can be stated that the firms are allowed to charge the prices where they are willing to make an influence on the products of the monopolistically competitive market. The price of the products can be evaluated where the profit maximizing level of the production would touch the demand curve. This price level is greater than the marginal cost of the firm. As a result, it can be mentioned that the customers need to pay the price, which is larger than the pricing structure in the perfectly competitive type market. This would in turn highlight the reduction of the consumer surplus. Moreover, it can be added that the producers under the monopolistic competition would produce less products compared to the perfect competition. Therefore, it can be inf erred that the profitability earning would be compensated when they earn higher profits by charging of higher price of the products. As a result, Lucas (2016) mentioned that the producer surplus would be reduced. From the above diagram it can be mentioned that the monopolistic competition creates the social dead weight loss and the inefficiency, which can be represented with the help of the brown colored region. It can be stated that the productive efficiency arises when a firm use all of the sources in an effectual manner. This situation would arise when the commodity price can be evaluated at the level of marginal cost. The marginal cost would be similar to the average cost of then goods. Moreover, Nikaido (2015) opined that the organizations also focused to determine the entire procedure of the products, which is greater than marginal cost in the monopolistic competition. This would indicate the ineffectiveness of the marketplace. This quantity is produced at the level where QM crosses the marginal cost curve. Similarly, it can be stated that the allocative efficiency would take place when a good is produced at the point, which would maximize the social welfare. This situation arises when the cost of the products is equal to the marginal benefits and this is equivalent to the marginal cost. Nonetheless, the price of the manufacturing goods in the monopolistically competitive market would be larger compared to the marginal cost. The market structure would not be allocative effective. According to Calvo Prez (2016), restaurant industry will be an ideal example of monopolistic competition. In the context, it can be stated that there are a number of restaurants in the monopolistic competition. On the other hand, it can be mentioned that there is no barriers to entry as well as no barriers to exit. In the points of Parenti, Ushchev and Thisse (2017), it can be added that every restaurants are closely substitutes to each other in the monopolistic competition. Profit maximization condition: According to Nikaido (2015), it can be mentioned that the restaurants raise the price up to a specific level, which is higher compared to the other restaurants, which also participate in the market. On the other hand, it can be mentioned that all of the restaurants are performing differently from the others, among which some of the individuals have aimed to support constantly. Under this type of market structure, the restaurants can effectively estimate the price level of the individuals, which is also unique. Short run market condition: In the points of Phelan et al. (2017), it can be mentioned that a restaurant would compete with the other restaurants as there are no barriers to exit as well as no barriers to entry. Hence, it can be noticed that the demand curve of the restaurants would be downward sloping. Moreover, it can be stated that the restaurant would aim to raise the price of the products than the other participants. As a result, the visitors would like to visit to the restaurants. The consumers usually like to visit where the price of the products are comparatively lower than the other firms. Hence, the marginal revenue curve of the firms would lie down the demand curve, which is downward sloping. Moreover, the marginal revenue curve of other food substances of the firms would be comparatively cheaper in the entire market price. Long run condition: In the points of Lucas (2016), it can be added that with the entry of new participants in the market place, the availability of getting the food staffs in the restaurants would be raised. If the demand of the food substances would be decreased, then it can be inferred that the demand curve of the restaurants would be highly elastic. As a result, the demand curve would move towards leftward. Therefore, new restaurants would also focus to come into the market place. This entrance of the restaurants into the market place would be continued where the restaurants would be able to earn higher profitability earning. Moreover, it can be added that zero solution would be noticed at the level where the market demand curve would be tangent with the average total cost curve. As a result, it can be inferred that the pricing structure of the food staffs in the restaurants would be decreased and the output level would also be decreased. The behavior of the restaurants in the monopolistic competition can be described in the following manner: Each and every restaurant in the monopolistic competition can take effective decision regarding the price as well as the output level. This pricing structure of the restaurants would be developed depending upon the cost of production of the foods. Information regarding the market structure is increased within the participants. Nonetheless, it is unlikely perfect. In addition, Roper, Love and Bonner (2017) cited that the consumers get the chance to make a re-evaluation about the food substances of the restaurants. This can be accessible within the restaurants before choosing the menus. However, they would not be able to worth the quality as well as the value of the service of the restaurant. In the words of Balistreri Rutherford (2013), it can be mentioned that the risks generated under the monopolistically competitive market, which is associated with the decision making procedure. Moreover, the entrepreneur performed an essential role compared to the other participants within the competition. The participants can also enter or leave from the market freely. Therefore, it can be opined that there are no barriers to entry as well as no barriers to exit within the market. On the other hand, it can be observed that in the monopolistic competition, there are four types of products. According to Stiglitz and Rosengard (2015), it can be identified that the first product differentiation is associated with the physical product differentiation. In this context, it can be stated that the size, design, the performance and the shape of the products are associated with the differentiated products. Secondly, product differentiation is connected with the packaging of the products and the promotional procedure. Next, human capital differentiation is based upon the skills and the knowledge of the employees of the firms. Lastly, it can be stated that product differentiation is depending upon the distribution procedure and in this process, mailing order and the internet shopping can be a greater example, which can efficiently relate this concept. As per the statement of Zhelobodko et al. (2012), the restaurants can take the help of advertisements to promote the service of their organization. As a result, the consumers or the visitors can get clear information about the product specification and can also identify the product differentiation. In the given case study, it can be noticed that Adani Groups Carmichael coal mine is positioned in Galilee Basin, Queensland. In this connection, it can be mentioned that the performance of the organization has released many harmful gases. As a result, third parties have been facing from negative externalities. In this context, it can be mentioned that the first and the second parties are identified such as the producers as well as the consumer respectively. In the opinion of Olabi (2016), it can be mentioned that negative externality is associated with the cost or with the benefits. This has an effect on the third party. They are not supposed to incur cost or the benefit. In addition, it can be mentioned that negative externality is related with the external cost of the products. This above figure identifies the impact of the negative externality. The optimal production quality can be evaluated by the output level Q2. In this level, the negative externality can reflect the output level at Q1. The shaded region can highlight the deadweight loss of the society. Moreover, the impact of negative externalities of the coal mine company can be explained in the following manner: It can reduce the life expectancy as the organization release many harmful gases. The harmful gases are such as ozone, sulphur dioxide. In this connection, it can be mentioned that these gases have the direct and negative impact on the health of the individuals. The respiratory system of the human being would be affected from these harmful gases. As a result, they may admit in the health care centers. Instead of this, the individuals would face from serious diseases and they may suffer from several lungs diseases, ataxia or renal dysfunction etc. Instead of this, Lucas (2016) opined that Adani Groups operation function increase the pollution in the atmosphere. This is considered as the negative externality as this has a negative impact on the individuals. In addition, it can be stated that the third parties are forced to pay for this negative externalities. Therefore, the coal mining company would reflect a negative impact on the negative cost on the individuals. Moreover, Nikaido (2015) cited that this coal mining organization has also discharged green house gas. This green house gas has a negative impact on the environment. From the reviews of report, it can be mentioned that Adani Groups has discharged sulphur around 145 million tons. Therefore, it can be mentioned that the air has been polluting due to the discharging of another harmful gas such as gravely toxic. According to Baumol Blinder (2015), it can be added that negative externality has the indirect effect on the economic operation. Therefore, it can be opined tha t external diseconomy would affect the atmosphere by raising the pollution level. This diagram highlights the impact of external diseconomy. The coal industry is operating in the competitive type market structure. In this purpose, it can be observed that marginal social cost is greater compared to the marginal private cost. Marginal social cost is greater for the reason of external cost. In addition, it can be mentioned that the marginal benefit is connected with the operation of coal mining. Therefore, the marginal social cost is equivalent to the marginal benefit. From the above diagram, it can be stated that the individual private cost can be determined along with the determination of P1 price level and the Q1 level of quantity. On the other hand, it can be added that individual would not choose the effective and higher price level P2 and the effective quantity level Q2. Moreover, social benefit is lower than social benefit. This study is essential to understand the growth of the environmental recompense instruments. This would be able to reduce the negative externality. Moreover, it can be mentioned that ecological services can increase the economic evaluation. Market failure is also related with the operation function of Adani Group. By supervising the performance of the organization, resource developers would be able to restore the well being of the locality. As a result, environmental balances of that place would be improved. References Assenza, T., Grazzini, J., Hommes, C., and Massaro, D. 2015. PQ strategies in monopolistic competition: Some insights from the lab.Journal of Economic Dynamics and Control,50, 62-77. Balistreri, E. J., and Rutherford, T. F. 2013. 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