Description 
Your goal in this simulation is to understand the profit maximization model for monopolistic competition, and to gain a deeper understanding of the behavior of firms in monopolistic competition. If you have not yet completed the lessons "MONOPOLISTIC COMPETITION" and "PROFIT MAXIMIZATION" in this module you should do so before proceeding with this simulation. In addition, you should have examined the Perfect Competition module to get the most out of this simulation.

In this simulation you play the role of Mort, the owner and operator of Mort's Ostrich Farm. You have to make short-run and long-run decisions that affect the operation of your farm. There are three different scenarios for you to choose from, each of which describes a different market situation. Your objective is to maximize your profits given these conditions. Depending on the scenario you choose, Mort may or may not be in a monopolistically competitive market at the beginning of the simulation. It is up to you to apply your knowledge of market structures to figure out exactly what is going on.

Once you begin the simulation you will be presented with short-run and long-run controls. In the short run, you need to set the price for quantity. As in other sims, your objective here is simply to maximize your profit for this period.

You have two long run controls: Research & Development (R&D) and Advertising. The R&D slider controls how much money you spend in order to try and develop better ostriches. If your R&D is successful you will be able to achieve a degree of product differentiation, which means that you will have some power over price. R&D costs money, however, so your fixed costs will also increase. It is up to you to determine the level of R&D that is appropriate. The more you are able to differentiate your product, other things being equal, the higher price you will be able to charge for it. Keep in mind that your competitors might also be developing better birds.

The advertising slider controls how much money you spend to advertise your birds. If you are successful in differentiating your product, you will need to tell your customers about it, and advertising is the way to do it. It is up to you to determine how much advertising (if any) is appropriate. If you advertise successfully, you should see an increase in demand for your product, but remember that advertising costs money, so it will also lead to higher costs.

Monopolistic competition is relatively complex. Remember that it shares characteristics with both monopoly and perfect competition. There are lots of farmers that raise ostriches. Unless Mort does something to differentiate his birds from everyone else's, he will be a perfect competitor (and a price taker) instead of a monopolistic competitor.
 
 
 
 
 

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