SELLING COST AND FIRM'S EQUILIBRIUM UNDER MONOPOLISTIC COMPETITION

• SELLING COSTS
  ( MONOPOLISTIC COMPETITION)
  MICRO ECONOMICS
• BY DR. SHASHI AGGARWAL
• IMPORTANT QUESTION
• WHAT ARE SELLING COST ? HOW DO THEY INFLUENCE THE EQUILIBRIUM OF A FIRM UNDER OPERATING UNDER CONDITION OF MONOPOLISTIC COMPETITION
• ANSWER :

1. SELLING COST MEANING AND DEFINITION
2. ASSUMPTIONS
3. EFFECT OF SELLING COST
4. THE SHAPE OF THE SELLING COSTS CURVE
5. SELLING COST AND FIRM’S EQUILIBRIUM

• SHORT QUESTION
• DIFFERENCE BETWEEN SELLING COST AND COST OF PRODUCTION :
• MEANING

1. IT REFERS TO THOSE COSTS WHICH ARE INCURRED TO INCREASE THE SALE OF THE PRODUCT,E.G. EXPENDITURE ON  ADVERTISEMENT,PUBLICITY,SALESMEN,COMMISSION TO RETAILERS, GIFTS AND CONCESSIONS TO CUSTOMERS.
2. PRODUCT DIFFERENTIATION IS IMPORTANT FEATURES OF MONOPOLISTIC COMPETITION
3. SELLING COSTS MAY BE DEFINED AS THOSE COSTS WHICH ARE INCURRED B A FIRM TO PERSUADE BUYERS TO PURCHASE ITS PRODUCTS IN REFERENCE TO OTHERS

• DEFINITION
• CHAMBERLIN,” SELLING COSTS ARE COSTS INCURRED TO ALTER THE POSITION OR SHAPE OF THE DEMAND CURVE FOR THE PRODUCT.
• PROF MEYERS,” SELLING COSTS MAY BE DEFINED AS COSTS NECESSARY TO PERSUADE A BUYER TO BUY ONE PRODUCT RATHER THAN ANOTHER OR TO BUY FROM ONE SELLER RATHER THAN ANOTHER.

• ASSUMPTIONS

1. TASTE AND DEMAND OF BUYER CAN BE CHANGED
2. IMPERFECT KNOWLEDGE OF THE BUYERS
3. SELLING COSTS INFORM THE BUYERS OF THE CONDITIONS OF MARKET.SUPERIORITY OF THE PRODUCT AND OTHER THINGS.

• EFFECT OF SELLING COSTS
• THE INFORMATION SELLING COSTS CHANGES THE SHAPES OF DEMAND CURVE.
• THE LOCATION OF THE DEMAND CURVE WILL CHANGE WHEN THE CONSUMER PREFERENCE IS CHANGED. KNOWN AS PERSUASIVE AND MANIPULATIVE SELLING COSTS. THROUGHOUT THIS KIND OF SELLING COST, A FIRM INFORMS ALSO AND ALSO PERSUADE THEM TO BUY.
• DIFFERENCE
  ONLY FOR SHORT QUESTION
• SELLING COST

1. INCURRED FOR THE PROMOTION OF SALES
2. ALL KINDS OF EXPENSE ON ADVERTISEMENT, COMMISSION TO SALES MEN, SALES PROMOTION AND PUBLICITY
3. PUSH THE SALE AND CREATE AWARENESS
4. MEANT TO CREATE AND SHIFT THE DEMAND FOR THE PRODUCT
5. HE AMOUNT OF SELLING COST DEPEND UPON THE NATURE OF THE COMPETITION

• PRODUCTION COST

1. THOSE COSTS WHICH A FIRM INCURS ON THE PRODUCTION OF A PRODUCT
2. COST OF RAW MATERIAL,WAGES TO THE WORKERS ,POWER,TRANSPORTATION TO THE MARKET,STORAGE AND DELIVERY TO THE BUYER
3. INCURRED TO PRODUCE COMMODITY AS PER BUYER’S REQUIREMENT
4. IT INCLUDES EXPENDITURE ON PRODUCTION OF THE COMMODITY, CREATION OF UTILITY
5. DEPEND UPON THE QUANTITY OF PRODUCTION

• SHAPE OF SELLING COSTS
• 
  
• SHAPE OF SELLING COSTS
• SHAPE OF SELLING COSTS

1.    IN THE BEGINNING PROPORTIONATE INCREASE IN SALES IS MORE THAN THE INCREASE IN SELLING COSTS

2.    MEANS UP TO POINT  PER UNIT SELLING COSTS GO ON DIMINISHING BUT AFTER A POINT THE SAME TEND TO INCREASE

• SELLING COST AND FIRM’S EQUILIBRIUM

1. ASSUMED THAT DEMAND FOR THE PRODUCT INCREASES DUE TO INCREASE IN SELLING COSTS,RESULTING EXTRA PROFIT TO THE PRODUCERS
2. DEMAND CURVE SHIFT TO RIGHT AS RESULT OF INCREASE IN SELLING COSTS
3. BOTH OUTPUT AND PRICE INCREASE ON ACCOUNT OF SELLING COST.
4. SELLING COSTS WILL BE STOPPED WHEN THE EXPENDITURE INCURRED ON THEM BECOMES EQUAL TO PROFIT EARNED.

SELLING COSTS AND FIRM’S EQUILIBRIUM

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• EXPLANATION
• INCREASE IN PROFIT ON ACCOUNT OF INCREASED SELLING COST IS SUBJECT TO DIMINISHING RETURN. THE INCREASE IN PROFIT ON ACCOUNT MUST ULTIMATELY COME TO THE POINT OF SATURATION. OPTIMUM SELLING COSTS OF A PROFIT MAXIMIZATION FIRM WILL BE THAT COST AT WHICH COMBINED MARGINAL COST OF PRODUCTION AND OF ADVERTISING IS EQUAL TO MARGINAL OF THE PRODUCT