This is a solution of Economic Business Environment Assignment in which we discuss Developing business 

Economic Business Environment Assignment


This assignment is about BA (British Airways) and it discusses its business ethics and will define the economic systems (Free market, command, and mixed market), their advantages, disadvantages and to profile the best economic business systems. In addition, it compares the aim of British Airways with the National health authority, and it Business Communications describes how market structures (Perfect competitive market, Monopoly, Oligopoly and monopolistic competition) determine the production and pricing decisions of businesses.   BA is the UK’s greatest intercontinental itinerary airline and one of the planet’s leading global premium airlines. The company has been working well until 2009 when the recession and fuel cost affected the revenue to decrease by almost 11%. Its vision is to become one of the most sophisticated International Airlines Group in the world and has to be inspired across the world’s main cities. Therefore, Heath row, Gatwick and London City airports will be the main places where the group planned to install. The use of management tools called SWOT, SMART, and PEST/PESTLE would be very helpful for the British Airways.

Task one

AC 1.1 Compare the purpose of British Airways (BA) with either the Red Cross or National health authority

Question: 1A (LO1.1) .The purpose of air services is to make profit, expand its business, to build strong relationship with its stakeholders and to run long term business. Hence, the company needs to create a sustainable organisation, especially with its customers in order to survive because the customers are the core of the business environment and they are sovereign. The National health authority its purpose is not about profit, but to take care of people because it creates social and economic assistance for the community; so it is a public sector, this means it is mainly controlled by government. It provides also public services such as NHS, and public goods called merit goods because they are legal goods and beneficial for all. However, British Airways is a private sector and it owned by its shareholders and functioned through its stakeholders.   The responsibilities of the British Airways are related on its activities on the international environment such as physical performance responsibilities by controlling its budgets and costs; health and safety  responsibilities by making its laws and policies that can keep the company safe such training its employees in workforce, hygiene, and by keeping accident reporting books; social responsibilities this means British Airways contributed a lot by supporting charities (donations), for example, British Airways recently partnered up with Comic Relief in order to transform the lives of disadvantaged children in many of its destinations ; ethical responsibilities it is about its ability to distinguish what is  right or wrong so that it will rely on doing right things, and equal opportunities responsibilities it is to avoid discriminations  because equality can really make people  feel involved. British Airways use the approach of CSR (customer service representative) they truly believe now they have all the vital elements in place to deliver their overall vision of becoming the world’s most responsible airline. Stakeholder is a person, group, or organisation that has direct or indirect interest in an organisation and it can affect or be affected by the organisation’s actions, objectives, or policies. Gate Gourmet is a food supplier for British Airways, so its employees are part of the British’s stakeholders. British Airways experienced problems with Gate Gourmet in August 2005. From 2000, there was less number of passengers wanting to fly, because the airline industries all over the world had been suffered because perhaps the price of fuel increased? This caused British Airways to outsource its service (in flight meal served by Gate Gourmet) to reduce its cost and increase its profits. Unfortunately, Gate Gourmet had been losing money everyday due to the new contract put forwards by BA which was not profitable. For that reason, Gate Gourmet decided to outsource new staff on lower salaries, this had discouraged the existing staff, and they went on strike. Caroll’s Model (1991) Page 10. Also, many passengers whose flights were cancelled, they suffered a lot; strike had cost about £50 million. Also British Airways provides support, free flights, excess baggage merchandise, cargo space and fundraising events, and many of BA staffs are involved in Charity working and abroad as part of the Segmenting Consumer Marketmanagement, they support their staffs in their charitable work. (Elkington in1999). In addition, British Airways is responsible for its internal and external environment issues. This means it has to focus in customers ‘satisfaction, employees ‘motivation and has to meet the government’s requirements. BA experienced difficulties in the past, fortunately it become one of the world successful airlines. British Airways, first of all, is interesting more in Human Resources Managements. For example, has set up training programme, development programme and recruitment programme in order to fulfil its needs.  BA increased the salary of its employees because if the employees are satisfied, they will provide their best effort for the success of the company, also they will feel that they are part of the organisation. Furthermore, they will treat the customers with dignity and respect, so the atmosphere will be friendly and enjoyable. Its flag airline carrier of the United Kingdom has a strong tradition of responsibility as it supports over 80 community and conservation charities across the world. In 2009, the airline gave more than £5 million to charitable causes, in the form of customer and other donations.  This was one of the best strategies of BA. Also, BA has developed Comprehensive programmes to help Climate change; this was to make sure it fully contributes its share of global carbon dioxide emission reductions by 2050. (J. Elkington, 1998)

AC 1.2 State the interest/objectives of AB stakeholders and describe the strategies BA is using to meet them. State the type of stakeholders, their objectives e.g. employees and follow that with the strategies used to achieve this by BA

StakeholderObjective of stakeholderStrategies used to achieve this


They are looking to buy a wide range of services and products.

They want easy accessibility and hope to buy excellent quality products and services at a competitive price.

By visiting the websites, by reading magazines, and by watching advertising on the TV.


They supply the business needs (products).By using feedback from the consumer


Wages, bonuses, discounts, holiday pension and want to keep their jobs.By knowing the company’s objectives and goals, and by being involved.


Profits and sustainabilityBy using brainstorming techniques or power versus interest grid in order to categorise the stakeholders in a way that provides greater insight into the role they play and, accordingly, how they need to be treated because some stakeholders are more important than others. (R. Allen, 2011)
GovernmentTax and regulationsBy putting forward new measures to tackle persistent tax avoiders; and by promoting sustainable development by assessing the extent to which the emerging plan, when judged against reasonable alternatives, will help to achieve relevant environmental, economic and social objectives.

AC 1.3 Explain the responsibilities of your BA (health and safety, equal opportunity, environment, taxation) to its key stakeholders and describe how they meet these responsibilities. Give instances where these responsibilities/obligations have been met by your selected organisation

ResponsibilityWhy it is a responsibilityStrategies used by BA to achieve it
Equal opportunity



The law requires that BA should consider equal opportunity policy that is effectively implemented and communicated to all employees, Act 2010. It may improve the recruitment process, help retain valued employees and deter acts of unlawful discriminationBy combating discrimination, and by applying equal opportunity to recruitment, selection, promotion, transfer facilities, training, benefits procedures, terms and conditions of all BA’s staff



Transportation of goods by airfreight and road haulage is a major contributor to carbon pollutionBy meeting its emissions target by reducing its own emissions. Contribution made by BA (towards the installation of its customer’s solar panels).
Health and safety



Under the law BA is responsible for health and safety management, according to Act 1974By having an effective health and safety management and risk management in reducing injuries, ill health and costs. By having health and safety auditing (internal or external) to monitor and review the prevention strategies implemented; and by encouraging workforce participation as key to reduce injuries and ill health.

 1B(LO 2.2). Taking into consideration the current economic problems facing UK and BA mentioned above, explain how the expansionary fiscal and monetary policies that has been introduced by the current UK government has impacted on the activities of BA and VAA

 Fiscal policy is the use of government spending and taxation to control the economy. When the government makes a decision on the goods and services it purchases, the taxes it collects, it is engaging in fiscal policy. This has an aim to counter economic cycles in order to gain lower unemployment, to obtain low or no inflation, and to achieve sustained but controllable economic growth. The fundamental economic impact of any change in the government budget is felt by particular groups, and this could be a tax cut for families with children, for example, increases their disposable income. Fiscal policy is basically, used to demonstrate the outcome on the aggregate economy of the SCHOOL OF HOSPITALITY TOURISMoverall degrees of spending and taxation, even more particularly, the gap between them.  Fiscal policy is tight when revenue is higher than spending, so the government budget is in surplus; in contrast, expansionary fiscal is when the spending is higher than revenue, this means the budget is in deficit.

The government policies in UK have significant impact over the business organizations working in the country such as VAA and BA. With the expansionary policies adopted by the UK government looking into the recession situations policies to reduce tax, increasing demand and lower interest rate can help the business organizations to grow. With lower tax imposed on the business organizations there costing would reduce significantly and this would allow them to offer their products and services at lower prices to consumers and due to this price benefit the demand for the products and services would increase. This would enhance the revenues for the business organizations and reduce impact of recession. At the same time lower interest rate would help the organizations to borrow funds from the bank and other financial institutions at lower interest rate so that their cost of borrowing reduces substantially and enhance their profitability. Read more about : A Relational Database for Inventory Management Help

1C(L0 2.3). Assess how the EU/UK competition and regulatory policies can or have impacted on the activities of the BA

Regulatory policy is about achieving government’s objectives through the use of regulations, laws, and other instruments to deliver better economic and social outcomes and thus enhance the life of citizens and business. Competition policies are laws put in place to regulate the contest between companies. Under the UK Civil Aviation Act 1982, the CAA must balance a number of objectives in making air transport or route licensing decisions making  where Mobile Phone Industry in UKapplications to operate a particular route are contested. These include encouraging British Airways to provide air services at the lowest fares consistent with safety. In recent years there have also been allegations that British Airways has used its strong market position unfairly to competitors’ detriment. Therefore, British Airways was fined by the European Commission in respect of its unlawful incentive scheme for travel agents. This shows how the EU/UK competition and regulatory policies have impacted on the activities of the British Airways. Competition is the way of trying to get or win something such as a prize or a success that someone else is also trying to get or win. Regulatory policy targets the behaviour of individuals or industry. For example a law that states that an individual must have an insurance card. A competitive policy seeks to encourage and improve the competitive process, and to ensure consumers feel the benefits of that process.

Many fiscal policies directed towards the airline industry such as BA and VAA have had significant affected because such taxes and fees can cause the elimination of considerable number of jobs. This has heavily impacted B and VAA have little manoeuvrability of funds to meet the demands of an operating budget.

Deregulation is another fiscal policy that has significantly impacted BA and VAA, since deregulation in 1979, the airline industry experienced substantial growth. This has emerged new competitions in the industry and has drove ticket prices down. The average ticket prices in 1979 remain relatively unchanged as the competitors created Mobile Phone Industry in Indiaconnecting flights through the new open sky policy. Also fluctuation in oil prices and exchange rate has directly affected BA and VAA. The price of crude oil has a significant impact on British Airways’ cost structure since fuel costs comprise 30% of an airline’s operating costs.(D. Hay, 2015)

British Airways is competing with many competitors such other Airline companies all over the world and this has encouraged BA to be innovative. The strategy of BA includes sophisticated technology accessories, customer relationships, employee relationships, safety and meeting customer’s needs. Also by keeping its values such as honesty, reliability, on time and good service will always help BA to gain competitive advantage and continue to be successful now and in the future.

1D (LO3.2).Using a range of examples, explain how the forces of demand and supply can affect the pricing decisions and sales

Supply is simply the amount available, and demand is amount that is wanted. Supply and demand are the two words that economists use most often, and supply and demand is the forces that make market economies work. So, the modern microeconomics is all about supply, demand, and market equilibrium. The terms supply and demand refer the behaviour of people how they interact with one another in markets. Buyers determine demand and sellers determine supply. Pricing decisions and sales is when the top management has to make reasonable decisions pricing Mobile Phone Industry in Indiaand sales. This means how much to charge for a product or service in depends on a multitude of factors such as competitors, cost advertising and sales promotion. When the price of some product went up because demand increased or the supply was short.  The price of the product decreased because there were only few demands or no demand for the product. For example, British Airways drops the price during certain periods when there are few travellers (demands), and it increases the price of ticket during summer or in the beginning of December. Therefore, demand and supply are the most important element in a market. Buyers’ preferences comprise the demand side of the market, and sellers’ preferences comprise the supply  side of the market. Prices and quantities are then determined by the point where supply and demand come together. So, it is important for BA to consider that prices and quantities are the outputs of the supply and demand model, not the inputs. Also it is important to consider that the supply and demand model only applies to competitive markets where there are many buyers and sellers all looking to buy and sell similar products.(J. Beggs, 2015)

 1E (LO 3. 3). With the aid of the management tool called PEST/PESTEL assess how the business environment shapes the behaviour of British airways

The cultural environment, defined as institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviours, is one of the many forces that affect marketing management’s capability to construct and maintain successful relationships with target customers. PESTEL which is stand for Political, Economic, Social, Technological, environmental, and Legal can be used to assess how the business environment shapes the behaviour of British Airways. Economical factors: British Airways is affected by the recession as the number of travellers is in trend of decreasing; BA responded to the actual economic situation increased by introducing low cost flying to fill empty seats, also the cost of fuel is a risk for BA because when the cost of oil increased this will affect the price of ticket and if the price raises less people use planes, in addition terrorist threat during the past few years makes people to think. Social factors: unemployment in UK and overseas could have affected BA because the lack of finance funding reduce the number of travellers, on the other hand, increase in airline crashes might people are reluctant to travel by airline, also religion and language  could affect BA, for example no meal that has pork can be served in flight to Muslim countries; environment factors: BA current strategy is to minimise the environmental impacts of their operation, this includes consideration of climate change, air quality, noise level, waste and recycling, therefore tighter environmental regulation may increase operational costs each year; technology factors: BA has invested a significant amount of money in improving its technology, BA must ensure that they remain up to date with these technological advances whilst avoiding becoming overly reliant, as this may isolate certain customer such as the elderly who do not feel comfortable using such technology; and legal factors: the major  legal factor affecting British Airways is the power of unions, BA has severely suffered many industrial actions especially in the past years and is aware of the implications that the trade union can cause, legal regulations on employee rights and customer rights have  to be followed, also BA  has to follow new regulations from the Europe and US to provide details on passenger such as the locations they are going to stay on the first night of their visit, and BA has responded to it by collecting required information on the “ manage my booking” sections of its website.  (M. Waas, 2014)

 1F (LO 4.1) Discuss the importance of international trade to BA and VAA

The exchange of goods, services and capital across the borders of different countries is known as international trade. British Airways is one of the world’s largest international airlines, and one of the most extensive international business scheduled airline route networks, flies to more than 300 destinations worldwide. Also, one of the world’s longest established airlines, is well known as an industry – leader. Therefore, the international trade is very important to them. British Airways are not only filling their planes, but they are helping British business export their goods and services; they are giving the British economy a boost. A good example of the importance of the international trade is that British Airways cannot only rely on customers in its own country, but also to attract new customers across the Business Communicationsworld. Even more importantly, British Airways, through international trade can develop more relationships, and discover more about different cultures, languages, markets, and products. The international trade is important to British Airways because it can encourage British Airways to operate and progress in an intensively competitive global economy.

1G (L O 4.2).  Fluctuations in oil prices and exchange rates will immediately affect British Airways and VAA.  Also the increase of VAT at 20% in January 2011 will affect British Airways and its shareholders as already mentioned in question 1E. In addition, if the pound becomes weaker against Euro or Dollard, this could affect British Airways and VAA and become vulnerable due to a poor exchange rate. Climate Change could be another global factor for British Airways and VAA as well. In the last few years, the impact of recession has been awful on British Airways because it got revenue decreased by 11.1% to £7994 million. Also cancellations of flights and loss of baggage could have affected British Airways’ reputation if left unresolved. Limited land and for growing airports which make expansion difficult at Heathrow. Failure to adopt a united environmental tactics could affect British Airline’s reputation and income. As governments and the regulations are powerful, by imposing and acting effectively this can make the operation of airlines hard or even impossible by sometimes blocking potential players entering the market. Customers are switching to other transport such as train, cars and shipping. The strongest presence of Lufthansa and American airlines will be the competitors for the British Airways. (S. Ping Chan, 2012). Terrorism is another important factor which can impact the situation as with increasing terrorism there would be stringent security measures applied to the aviation industry. Also such events can lead to the lower confidence among the consumers for the aviation sector.

BA and virgi1H (LO4.3). The European Union (EU) was founded in 1958 by the treaty of Rome and its aim was to create a common market in order to encourage the member states to trade freely and promote free trade; to remove the tariff barriers between member states and to institute the common tariffs on goods outside the union. The advantages of this are to increase trade and investment, free movement of goods and capital, and help to improve productivity and to reduce costs; also to increase GDP (Gross domestic product) in a country. According to the European commission GDP of countries of EU could increase by an average of 4%. The gains of countries like EU which have a well developed financial market. However, there are some disadvantages such as surrender of national political and economic sovereignty, and the same rate of interest must apply to all the Euro zone countries. British Airways is of the biggest company among the European States, so all these factors have impacted it. Also for many years now the European Union has been enthusiastic to tackling climate change both internally and internationally and has place it high on the EU agenda, as reflected in European climate change policy. Climate change is one of the major challenges facing mankind in the coming years, because rising temperatures, melting glaciers and increasingly regular droughts and flooding are all evidence that climate change is really happening. Therefore, the EU is taking action to control greenhouse gas emissions in all its areas of activity in order to achieve the following objectives: consuming less-polluting energy more effectively, establishing cleaner and more balanced transport options, making companies more environmentally responsible without compromising their competitiveness, ensuring that the international environment is friendly used. Already British Airways is more interesting as it has changed its strategy of working and has been successful because it adopted new policies. One of the policies that states to reduce Co2 emissions by 15% by all airlines and British Airways has decided to reduce by 50% as they are working on creating a new kind of fuel which is known as bio diesel which is pollution free and environment friendly.(The BBC, 2015)

Task Two

Economic Systems is the way a country’s resources are owned and the way that country takes decisions as to what produce, how much to produce and how to distribute what has been produced determine the type of economic system that particular country practises. There are three types of economic systems: Market Economy (also called Free Enterprise Economies or Capitalist Economy), centrally –Planned or Controlled Economy, and Mixed Economy. Free Market, all resources and means of production are owned by private individuals and private organisations e.g. USA and Japan. They can make their choice about what to produce, how to produce, and for whom to produce. The idea will come from the consumers according to their needs. The government has role to pass law to protect businessmen and consumers, to provide the security (police), to stop firms from dominating the market and to put a limit on power of trade unions, restore and maintain states properties. As for any deals, there will be advantages and disadvantages.

Advantages: Methodically, Free market economies are extremely competitive.  There is good reason that free market economies assign their resources more systematically. Also, decisions about what to produce are decided by the people who will actually consume the goods. Firms will wish prices to be as low as possible so that consumers will be happy to buy from them; this drive towards competency should mean that resources are not wasted. Firms will wisely choose and produce what consumers are really prepared to buy because the consumer is self-governing. Firms will always be searching to produce something modern to get ahead of their competitors.  Therefore, countries whose Business Communicationseconomic system development has been almost to the free market model have grown much quicker than those with a command economy since the World War Two. Disadvantages:  Public goods cannot be provided privately, in contrast, these products have to be provided publicly. Even in a very free market, government has to take role on certain demerit goods because they are bad for human’s health. For example, drugs alcohol, and cigarettes. So if someone start life with very little, or no even has a good education, then there will be a very little protection from destitution. (D. Griffin, 2015)

Planned Economic Systems (Socialism) is the type of economic systems in which the government owns all means of production and takes control on everything. Therefore, individuals are not allowed to own any property.  The States such as Cuba, China, and the former Soviet Union are under Planning Economic Systems. Planned economies can provide stability, but also can limit the growth and advancement of the country if they do not assign resources to the innovative enterprises. Choice is made by the government, so it is to the government to decide what to produce, how to produce and for whom to produce. Prices are variable without state instructions. Advantages: Equality plays huge role, hence the resources and fortune can be equally distributed according to the values of society. Production is for needs rather than profit. It is possible to make long-term plans; and the duplication and waste of resources can control as allocation is centrally planned. On the other hand, government will provide job to everybody in order to avoid unemployment because the government is responsible for everything.

Disadvantages of Planned Economic Systems: Lack of motivation and the lack of having your own vision for future. Poor standard of living and the lack of profit mean no opportunity for improvement because people could not really be enthusiastic in doing things. Some groups of people they do not exactly what government has planned ahead?

Mixed Economic Systems which is consisted of Public sector and Private Sector, there are no real free market economies or pure command economies. A mixed economy is an economy system that integrates element of more than one economic system.  That is meaning an economic system that has both privately-owned and state-owned enterprises (Capitalism and Socialism or mixed market). This system demonstrates the disadvantages of both the free market and planned economic systems. The balance between them is less equal because government can fix the degree of mixing. For instance, government can decide how much business activities there will be in the private sector and public sector. This system is adapted by all Western European countries. Advantages of Mixed Economy authorises individuals to make their business in order to make profits but in the same time they can contribute towards the welfare of society. Also it creates efficiency in both the private sector and public sector. Producers and consumer are free to choose what to produce and what to consume. However, harmful goods are not allowed, failing to avoid that, government will take action against the person. The mixed economy may have less income inequality because government plays its role. Disadvantages of Mixed Economy: Private organisations could face lot problems because of various government loopholes such as favouritism and bureaucratic. The balance tends to lean more toward government because people have less freedom. Furthermore, some unfitted regulations may paralyse features of production; this could lead economic balance to shift.  All three economic systems are quite good, but the problems are just about fairness, equality, and to consider humanity as beneficial for all. As it is quite difficult to make everybody comfortable, so maybe it is better to choose not to be too hot or not to be too cold. Overall, it would be extremely good if any of these three types of the economic systems could perfectly succeed on its own because they are all based on right things to be. However, mixed economic system is best allocates resources.(D. Griffin, 2015)

Task Three

The third part of the assignment gives the definition and argues the four categories of the market types, they are: perfect competitive market, monopoly, oligopoly and monopolistic competition and how market structures determine the output and pricing decisions of businesses. So, a perfect competitive market means that sellers and buyers their own decisions of selling or buying have no effect on the market price. This market can survive only if there is same kind of products, low exit and entry barricades and a real knowledge about product price, cost and quality. A monopoly is when a market has only one producer or seller of product; also when a market structure is dominated by few organisations is called oligopoly. Finally, monopolistic competition is a market structure which co-operates elements of monopoly and competitive markets. Basically, a monopolistic competitive market gives freedom of entry and exit; however, firms are able to differentiate their products. For that reason, they have an inelastic demand curve and can set prices; but because there is freedom of entry, supernormal profits, this will motivate more firms to enter the market leading to normal profits in long term. The monopolistic competition also referred to as the competitive market. The oligopoly market also known as a duopoly when only two firms exist in the

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market, but a monophony has only one buyer.  All these types of market structures can be grouped into the perfectly competitive structure and the imperfectly competitive structure. The imperfectly competitive market structures are the oligopoly, duopoly, monopoly and the monopolistic competition. The market structures control how price and output decisions are done by the firms in their own structure. Most market structures, the basis goals are to maximize profits or minimize losses and the most important point is how price and output decisions are made. Perfect or pure competition is rare in a real world, but the model is useful as it helps to analyse industries with similar feature to pure competition. Agriculture and stock market are examples can be taken as examples. The individual firm can take its demand as perfectly elastic.  A perfectly elastic demand curve is horizontal line at the price. Not all firms make supernormal profits in the short run. Therefore, their profits depend on the position of their short run cost curves. On the other hand, some firms can experience sub-normal profits because their average total cost is more than the current market price. Many suppliers each with  an insignificant share of market, this means that each firm is too tiny relative to the general market to affect price via a change in its own supply, so each individual firm is supposed to be a price taker. Consumers have adequate information about the prices all sellers in the market charge, so if some firms decide to charge a price higher than the ruling market price, there will be a huge substitution impact away from this firm. Also, there are presumed to be on barriers to entry & exit of firms in long run; this means that the market is open to competition from new suppliers, so this can affect the long run profits by each firm in the industry. The long run equilibrium for a perfectly competitive market happens when the marginal firm makes normal profit only in the long term. In the short run the equilibrium market price is influenced by the interaction between market demand and Global Mobile Phone Industry2market supply. The firm can make a decision about how much to produce or what price to charge depends on how competitive the market structure is. For instance, if British Airways increases its ticket prices by 10%, there will be a small reduction in the quantity of tickets demanded. If the corner gas station raises its gasoline prices by 4% there will be a significant reduction in the gas demanded. For example, in a very competitive market like the local gasoline market, a single station has too little choice in what price to charge. In case that the station is busy there is no reason to lower the price, unfortunately, if it raises its price by 12 cents a gallon, it will have almost no customers.( 2015) Read more about : Business Management Assignment Help

The Equilibrium level in monopoly is that level of output in which marginal revenue equals marginal cost. The producer will continue producer as long as marginal revenue exceeds the marginal cost. At the point where MR is equal to MC the profit will be maximum and beyond this point the producer will stop producing.

In perfect competition market, the price is determined by the industry. Industry is a group of firms producing identical goods. The equilibrium price is determined at a point where the demand for and supply of the commodity of the industry are equal to each other. The process of price and output determination is shown through a table given below:

Supply of outputDemand for outputPrice (in Rs.)
2,000 units
4,000 units
6,000 units
8,000 units
10,000 units
10,000 units
8,000 units
6,000 units
4,000 units
2,000 units

A monopolistic competitor, in the short run, is like a monopolist because it is the only producer of its unique product. But unlike a monopoly, the monopolistically competitive firm faces competition from other firms producing good substitutes for its product.

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