Discussion Post
Most firms and businesses in our economy operate under monopolistic competition, and product differentiation in this market type is one of the main factors that lead to price differentiation. In addition and because prices affect quantity demanded inversely (higher prices lead to lower quantity demanded, and lower prices lead to higher quantity demanded), marginal revenue (the additional revenue obtained from producing and selling an additional unit of output) will always be lower than prices on the demand curve because lower prices leads to lower revenue.
Review the following simple yet useful video that explains the concepts of costs and profits.
Revenue, Profits and Prices
Because ease of entry is high in both perfect competition and monopolistic competition markets, and because making economic profits will always attract new producers (entrants), how do firms survive and make profits in those markets?
Provide an example of a firm or a small business from the real world that is surviving the dynamic nature of monopolistic competition and discuss some approaches they have used (or are currently using) to compete and survive in the market.
• In addition, provide an example or a scenario from your personal (or professional) experience, an observation, a story that you have read, or an idea or a thought that you might have for practical, creative, and/or effective ways to minimize production costs in order to maximize profits.
Aldi & Monopolistic Competition
Probably one of the most noticeable businesses that survived and thrived during good and bad economic times that I have observed is Aldi. Aldi used to be known for its cheap and low-quality food, in addition to low customer service level. This differentiation helped Aldi thrive during the economic decline (recessions) since people were looking for ways to save money and not focusing too much on service and/or quality products.
However, Aldi has evolved, still offering lower-priced products, but now you can find all-natural products, a gluten-free section, organic items, and fresher produce. So, Aldi evolved to meet the growing needs for healthier and diverse commodities while appealing to the newer generation that emphasizes "less waste", meaning they prefer smaller, friendly, and more efficient stores over huge but expensive ones.
One way Aldi minimized costs, was to not provide any free bagging articles--at Aldi, one needs to bring their own bags or pay a small fee for Aldi bags. I believe Aldi has a great business model that is adaptable, flexible, diverse, and appealing. Share your thoughts, story, and observation with us.
• Provide your example of a firm or a small business from the real world that is surviving the dynamic nature of monopolistic competition and discuss some approaches they have used (or are currently using) to compete and survive in the market. Recall the reading, a monopolistic competition market structure is not a monopoly market structure. These are two different markets.
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.