How does the monopolistic competitive firm determins the price and output?
The firm has an immediate check on its retail: It should slowly raise its price to the point where the price once again becomes elastic on the curve. It should do this by slowly cutting back supply. Be careful not to cut too much, or the price will rise so much that barriers to entry will be breached. But, there could be a problem here: If the firm is vertically integrated, then it will start having problems keeping track of its costs within the confines of the integration. This ultimately is the reason why communism fails — because there is no competition for the state ownership, it inevitably becomes inefficient. To compute these internal costs, the firm must have some kind of access to an actual outside market — it must be able to compare what it is doing to what others are doing to know it is operating efficiently. The cost element is one of the primary checks against realization of actual monopoly capitalism. Also, if the market remains free, sharpshooting firms will appear to p
