Product Variation Equilibrium
An important problem that a firm under monopolistic competition has to tackle is concerned with product adjustment. This problem does not arise under perfect competition. Since the product is homogeneous. But under imperfect competition. there is product differentiation. The product has to be adjusted to consumer’s preferences so that the profit is maximised, The product adjustment may take place through an “alteration in the quality of the product itself. technical changes. a ncw design, better materials: it may mcan ncw package or container. it may mean more prompt or courteous service, or different way of doing business, or perhaps a different location. In some cases, an alteration is specific and definite -the adoption of new design, for instance, In others. a change in the quality of service. it may be gradual. perhaps unconscious.” The choice (If the differentiated product will be made on the principle of profit maximisation, In case variety A gives c0re profit than variety H. thc producer will produce more of A ami less of 13 so that he maximizes his profit. Thus. a firm operating under monopolistic competition must work out a product equilibrium in addition to the price-output equilibrium. It should also adjust selling cost for maximising profit which we discuss below. Product variation thus means changing the physical characteristics of the product or the conditions under which it is sold.