Answer to Question #81366 in Microeconomics for dolly

Question

Chirpy Grilled Chicken (a fast food outlet) operate in a monopolistically competitive industry and will spend about R10m increasing the range of meals it offers, in 2019.
4.1 With the aid of well labelled diagrams, explain Chirpy Grilled Chickens` profit maximising position, in the short-run and how this may change in the long-run.
4.2 Explain the key features of the industry in which Chirpy Grilled Chicken operate in comparison to the South African stock market.

Answer 1

4.1 Chirpy Grilled Chickens` will probably receive profit at his profit maximising position (equilibrium quantity at MR = MC, equilibrium price from the demand curve at this quantity) in the short-run after the increase in range of its meals, but in the long-run all the firms in the industry will have normal (zero) profits at their profit maximising positions.
4.2 Monopolistic Competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in the industry are low, and the decisions of any one firm do not directly affect those of its competitors. All firms have the same, relatively low degree of market power; they are all price makers. In the short run, economic profit is positive, but it approaches zero in the long run.
Source: https://www.investopedia.com/terms/m/monopolisticmarket.asp#ixzz5SC4Tt62X