Submit Search
Upload
Monopolistic Competition
•
Download as PPT, PDF
•
20 likes
•
8,575 views
C
Chris Thomas
Follow
Monopolistic Competition
Read less
Read more
Education
Report
Share
Report
Share
1 of 36
Download now
Recommended
Monopoly
Monopoly
Chris Thomas
Â
Chapter 14
Chapter 14
sdugfvna
Â
Oligopoly
Oligopoly
Chris Thomas
Â
Monopolistic competition
Monopolistic competition
Rossan Niraula
Â
Monopoly
Monopoly
Kevin A
Â
Monopoly
Monopoly
Rossan Niraula
Â
The Markets for the Factors of Production
The Markets for the Factors of Production
Chris Thomas
Â
Chapter 15
Chapter 15
sdugfvna
Â
Recommended
Monopoly
Monopoly
Chris Thomas
Â
Chapter 14
Chapter 14
sdugfvna
Â
Oligopoly
Oligopoly
Chris Thomas
Â
Monopolistic competition
Monopolistic competition
Rossan Niraula
Â
Monopoly
Monopoly
Kevin A
Â
Monopoly
Monopoly
Rossan Niraula
Â
The Markets for the Factors of Production
The Markets for the Factors of Production
Chris Thomas
Â
Chapter 15
Chapter 15
sdugfvna
Â
Monopolistic competition
Monopolistic competition
learn addict
Â
Firms in competitive market
Firms in competitive market
lousiaivan
Â
Firms in Competitive Markets
Firms in Competitive Markets
Tuul Tuul
Â
14 firms competitive
14 firms competitive
bhuvnesh chhabra
Â
Firms in Competitive Markets
Firms in Competitive Markets
Chris Thomas
Â
Chapter 13
Chapter 13
sdugfvna
Â
Supply, Demand, and Government Policies
Supply, Demand, and Government Policies
Chris Thomas
Â
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
djalex035
Â
The Costs of Production
The Costs of Production
Chris Thomas
Â
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Abd ELRahman ALFar
Â
Elasticity and Its Application
Elasticity and Its Application
Chris Thomas
Â
Perfect competition
Perfect competition
Suresh Madhavan
Â
Micro ch10-presentation
Micro ch10-presentation
Listiani Kumala Sari
Â
Firms in competitive market
Firms in competitive market
Dr Vijay Pithadia Director
Â
Oligopoly
Oligopoly
Adi Rezpector
Â
Monopoly
Monopoly
Khalid Aziz
Â
The Theory of Consumer Choice
The Theory of Consumer Choice
Chris Thomas
Â
Monopoly
Monopoly
Vibhor Agarwal
Â
The Model Of Perfect Competition
The Model Of Perfect Competition
Kevin A
Â
Perfect competition
Perfect competition
Khalid Aziz
Â
Monopolistic competition in short run
Monopolistic competition in short run
Animesh Gupta
Â
Measuring a Nation's Income
Measuring a Nation's Income
Chris Thomas
Â
More Related Content
What's hot
Monopolistic competition
Monopolistic competition
learn addict
Â
Firms in competitive market
Firms in competitive market
lousiaivan
Â
Firms in Competitive Markets
Firms in Competitive Markets
Tuul Tuul
Â
14 firms competitive
14 firms competitive
bhuvnesh chhabra
Â
Firms in Competitive Markets
Firms in Competitive Markets
Chris Thomas
Â
Chapter 13
Chapter 13
sdugfvna
Â
Supply, Demand, and Government Policies
Supply, Demand, and Government Policies
Chris Thomas
Â
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
djalex035
Â
The Costs of Production
The Costs of Production
Chris Thomas
Â
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Abd ELRahman ALFar
Â
Elasticity and Its Application
Elasticity and Its Application
Chris Thomas
Â
Perfect competition
Perfect competition
Suresh Madhavan
Â
Micro ch10-presentation
Micro ch10-presentation
Listiani Kumala Sari
Â
Firms in competitive market
Firms in competitive market
Dr Vijay Pithadia Director
Â
Oligopoly
Oligopoly
Adi Rezpector
Â
Monopoly
Monopoly
Khalid Aziz
Â
The Theory of Consumer Choice
The Theory of Consumer Choice
Chris Thomas
Â
Monopoly
Monopoly
Vibhor Agarwal
Â
The Model Of Perfect Competition
The Model Of Perfect Competition
Kevin A
Â
Perfect competition
Perfect competition
Khalid Aziz
Â
What's hot
(20)
Monopolistic competition
Monopolistic competition
Â
Firms in competitive market
Firms in competitive market
Â
Firms in Competitive Markets
Firms in Competitive Markets
Â
14 firms competitive
14 firms competitive
Â
Firms in Competitive Markets
Firms in Competitive Markets
Â
Chapter 13
Chapter 13
Â
Supply, Demand, and Government Policies
Supply, Demand, and Government Policies
Â
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
Monopoly_Chapter 15_Macroeconomics_ Mankew power point slides
Â
The Costs of Production
The Costs of Production
Â
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Mankiew chapter 7 Consumers, Producers, and the Efficiency of Markets
Â
Elasticity and Its Application
Elasticity and Its Application
Â
Perfect competition
Perfect competition
Â
Micro ch10-presentation
Micro ch10-presentation
Â
Firms in competitive market
Firms in competitive market
Â
Oligopoly
Oligopoly
Â
Monopoly
Monopoly
Â
The Theory of Consumer Choice
The Theory of Consumer Choice
Â
Monopoly
Monopoly
Â
The Model Of Perfect Competition
The Model Of Perfect Competition
Â
Perfect competition
Perfect competition
Â
Viewers also liked
Monopolistic competition in short run
Monopolistic competition in short run
Animesh Gupta
Â
Measuring a Nation's Income
Measuring a Nation's Income
Chris Thomas
Â
Measuring the Cost of Living
Measuring the Cost of Living
Chris Thomas
Â
Civil Rights: Equal Justice Under Law
Civil Rights: Equal Justice Under Law
Chris Thomas
Â
Production and Growth
Production and Growth
Chris Thomas
Â
Income Inequality and Poverty
Income Inequality and Poverty
Chris Thomas
Â
Fluid intro
Fluid intro
Yasir Hashmi
Â
Market Structure
Market Structure
Dr Naim R Kidwai
Â
17
17
Max Scott
Â
Ten Principles of Economics
Ten Principles of Economics
Chris Thomas
Â
Earnings and Discrimination
Earnings and Discrimination
Chris Thomas
Â
The Costs of Taxation
The Costs of Taxation
Chris Thomas
Â
The Market Forces of Supply and Demand
The Market Forces of Supply and Demand
Chris Thomas
Â
A Macroeconomic Theory of the Open Economy
A Macroeconomic Theory of the Open Economy
Chris Thomas
Â
Five Debates over Macroeconomic Policy
Five Debates over Macroeconomic Policy
Chris Thomas
Â
Consumers, Producers, and the Efficiency of Markets
Consumers, Producers, and the Efficiency of Markets
Chris Thomas
Â
Interdependence and the Gains from Trade
Interdependence and the Gains from Trade
Chris Thomas
Â
Civil Liberties: Protecting Individual Rights
Civil Liberties: Protecting Individual Rights
Chris Thomas
Â
Managerial economics
Managerial economics
Dr. Waqar Ahmad
Â
The Design of the Tax System
The Design of the Tax System
Chris Thomas
Â
Viewers also liked
(20)
Monopolistic competition in short run
Monopolistic competition in short run
Â
Measuring a Nation's Income
Measuring a Nation's Income
Â
Measuring the Cost of Living
Measuring the Cost of Living
Â
Civil Rights: Equal Justice Under Law
Civil Rights: Equal Justice Under Law
Â
Production and Growth
Production and Growth
Â
Income Inequality and Poverty
Income Inequality and Poverty
Â
Fluid intro
Fluid intro
Â
Market Structure
Market Structure
Â
17
17
Â
Ten Principles of Economics
Ten Principles of Economics
Â
Earnings and Discrimination
Earnings and Discrimination
Â
The Costs of Taxation
The Costs of Taxation
Â
The Market Forces of Supply and Demand
The Market Forces of Supply and Demand
Â
A Macroeconomic Theory of the Open Economy
A Macroeconomic Theory of the Open Economy
Â
Five Debates over Macroeconomic Policy
Five Debates over Macroeconomic Policy
Â
Consumers, Producers, and the Efficiency of Markets
Consumers, Producers, and the Efficiency of Markets
Â
Interdependence and the Gains from Trade
Interdependence and the Gains from Trade
Â
Civil Liberties: Protecting Individual Rights
Civil Liberties: Protecting Individual Rights
Â
Managerial economics
Managerial economics
Â
The Design of the Tax System
The Design of the Tax System
Â
Similar to Monopolistic Competition
Ch.15 Monopoly.pptx
Ch.15 Monopoly.pptx
TheONEGUY
Â
monopoly-100403110412-phpapp02.pptx
monopoly-100403110412-phpapp02.pptx
sadiqfarhan2
Â
Monopolistic competition - The Four Types of Market Structure - Economics
Monopolistic competition - The Four Types of Market Structure - Economics
FaHaD .H. NooR
Â
Monopolistic competition basic things
Monopolistic competition basic things
Ayyappan Karuppiah
Â
8350636.ppt business
8350636.ppt business
sairashah30
Â
Market price and output determinantion
Market price and output determinantion
R S
Â
Market structure final monopolistic comp
Market structure final monopolistic comp
Tej Kiran
Â
Monopolistic Competition
Monopolistic Competition
Tuul Tuul
Â
mopolistic competition- all you neeed to know
mopolistic competition- all you neeed to know
ANKUR BAROT
Â
Economics alternative market structures
Economics alternative market structures
Mohit Negi
Â
Monopoly Market structure
Monopoly Market structure
Nehali29
Â
Prinecomi lectureppt ch12
Prinecomi lectureppt ch12
rsvanwassenhove
Â
Be chap5 competitive, monopoly, monopolistic competitive markets
Be chap5 competitive, monopoly, monopolistic competitive markets
fadzliskc
Â
Imprefect
Imprefect
Yashika Parekh
Â
Chapter 6: Competitive, Monopolistic, and Monopolistically Competitive Markets
Chapter 6: Competitive, Monopolistic, and Monopolistically Competitive Markets
Firdaus Fitri Zainal Abidin
Â
Chapter 6 market structure competitive, monopolistic and monopolistically c...
Chapter 6 market structure competitive, monopolistic and monopolistically c...
skceducation
Â
15
15
Max Scott
Â
Econ606 chapter 13 2020
Econ606 chapter 13 2020
sakanor
Â
Market structure
Market structure
Abhishek kumar Pandey
Â
Chapter 7 presentation part a
Chapter 7 presentation part a
krobinette
Â
Similar to Monopolistic Competition
(20)
Ch.15 Monopoly.pptx
Ch.15 Monopoly.pptx
Â
monopoly-100403110412-phpapp02.pptx
monopoly-100403110412-phpapp02.pptx
Â
Monopolistic competition - The Four Types of Market Structure - Economics
Monopolistic competition - The Four Types of Market Structure - Economics
Â
Monopolistic competition basic things
Monopolistic competition basic things
Â
8350636.ppt business
8350636.ppt business
Â
Market price and output determinantion
Market price and output determinantion
Â
Market structure final monopolistic comp
Market structure final monopolistic comp
Â
Monopolistic Competition
Monopolistic Competition
Â
mopolistic competition- all you neeed to know
mopolistic competition- all you neeed to know
Â
Economics alternative market structures
Economics alternative market structures
Â
Monopoly Market structure
Monopoly Market structure
Â
Prinecomi lectureppt ch12
Prinecomi lectureppt ch12
Â
Be chap5 competitive, monopoly, monopolistic competitive markets
Be chap5 competitive, monopoly, monopolistic competitive markets
Â
Imprefect
Imprefect
Â
Chapter 6: Competitive, Monopolistic, and Monopolistically Competitive Markets
Chapter 6: Competitive, Monopolistic, and Monopolistically Competitive Markets
Â
Chapter 6 market structure competitive, monopolistic and monopolistically c...
Chapter 6 market structure competitive, monopolistic and monopolistically c...
Â
15
15
Â
Econ606 chapter 13 2020
Econ606 chapter 13 2020
Â
Market structure
Market structure
Â
Chapter 7 presentation part a
Chapter 7 presentation part a
Â
More from Chris Thomas
The Federal Court System
The Federal Court System
Chris Thomas
Â
Foreign Policy and National Defense
Foreign Policy and National Defense
Chris Thomas
Â
Financing Government
Financing Government
Chris Thomas
Â
Government at Work: The Bureaucracy
Government at Work: The Bureaucracy
Chris Thomas
Â
The Presidency
The Presidency
Chris Thomas
Â
Congress in Action
Congress in Action
Chris Thomas
Â
Congress
Congress
Chris Thomas
Â
Interest Groups
Interest Groups
Chris Thomas
Â
The Electoral Process
The Electoral Process
Chris Thomas
Â
Voters and Voter Behavior
Voters and Voter Behavior
Chris Thomas
Â
Political Parties
Political Parties
Chris Thomas
Â
Federalism
Federalism
Chris Thomas
Â
The Constitution
The Constitution
Chris Thomas
Â
Origins of American Government
Origins of American Government
Chris Thomas
Â
Principles of Government
Principles of Government
Chris Thomas
Â
Environmental Policy
Environmental Policy
Chris Thomas
Â
Foreign and Military Policy
Foreign and Military Policy
Chris Thomas
Â
Social Welfare
Social Welfare
Chris Thomas
Â
Economic Policy
Economic Policy
Chris Thomas
Â
The Policy-Making Process
The Policy-Making Process
Chris Thomas
Â
More from Chris Thomas
(20)
The Federal Court System
The Federal Court System
Â
Foreign Policy and National Defense
Foreign Policy and National Defense
Â
Financing Government
Financing Government
Â
Government at Work: The Bureaucracy
Government at Work: The Bureaucracy
Â
The Presidency
The Presidency
Â
Congress in Action
Congress in Action
Â
Congress
Congress
Â
Interest Groups
Interest Groups
Â
The Electoral Process
The Electoral Process
Â
Voters and Voter Behavior
Voters and Voter Behavior
Â
Political Parties
Political Parties
Â
Federalism
Federalism
Â
The Constitution
The Constitution
Â
Origins of American Government
Origins of American Government
Â
Principles of Government
Principles of Government
Â
Environmental Policy
Environmental Policy
Â
Foreign and Military Policy
Foreign and Military Policy
Â
Social Welfare
Social Welfare
Â
Economic Policy
Economic Policy
Â
The Policy-Making Process
The Policy-Making Process
Â
Recently uploaded
MENTAL STATUS EXAMINATION format.docx
MENTAL STATUS EXAMINATION format.docx
PoojaSen20
Â
Q4-W6-Restating Informational Text Grade 3
Q4-W6-Restating Informational Text Grade 3
JemimahLaneBuaron
Â
SOCIAL AND HISTORICAL CONTEXT - LFTVD.pptx
SOCIAL AND HISTORICAL CONTEXT - LFTVD.pptx
iammrhaywood
Â
Paris 2024 Olympic Geographies - an activity
Paris 2024 Olympic Geographies - an activity
GeoBlogs
Â
A Critique of the Proposed National Education Policy Reform
A Critique of the Proposed National Education Policy Reform
Chameera Dedduwage
Â
BASLIQ CURRENT LOOKBOOK LOOKBOOK(1) (1).pdf
BASLIQ CURRENT LOOKBOOK LOOKBOOK(1) (1).pdf
SoniaTolstoy
Â
Employee wellbeing at the workplace.pptx
Employee wellbeing at the workplace.pptx
NirmalaLoungPoorunde1
Â
Solving Puzzles Benefits Everyone (English).pptx
Solving Puzzles Benefits Everyone (English).pptx
OH TEIK BIN
Â
Model Call Girl in Bikash Puri Delhi reach out to us at 🔝9953056974🔝
Model Call Girl in Bikash Puri Delhi reach out to us at 🔝9953056974🔝
9953056974 Low Rate Call Girls In Saket, Delhi NCR
Â
Accessible design: Minimum effort, maximum impact
Accessible design: Minimum effort, maximum impact
dawncurless
Â
URLs and Routing in the Odoo 17 Website App
URLs and Routing in the Odoo 17 Website App
Celine George
Â
Call Girls in Dwarka Mor Delhi Contact Us 9654467111
Call Girls in Dwarka Mor Delhi Contact Us 9654467111
Sapana Sha
Â
Crayon Activity Handout For the Crayon A
Crayon Activity Handout For the Crayon A
UnboundStockton
Â
POINT- BIOCHEMISTRY SEM 2 ENZYMES UNIT 5.pptx
POINT- BIOCHEMISTRY SEM 2 ENZYMES UNIT 5.pptx
Sayali Powar
Â
The basics of sentences session 2pptx copy.pptx
The basics of sentences session 2pptx copy.pptx
heathfieldcps1
Â
How to Make a Pirate ship Primary Education.pptx
How to Make a Pirate ship Primary Education.pptx
manuelaromero2013
Â
CĂłdigo Creativo y Arte de Software | Unidad 1
CĂłdigo Creativo y Arte de Software | Unidad 1
MaestrĂa en ComunicaciĂłn Digital Interactiva - UNR
Â
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Krashi Coaching
Â
Staff of Color (SOC) Retention Efforts DDSD
Staff of Color (SOC) Retention Efforts DDSD
David Douglas School District
Â
Mastering the Unannounced Regulatory Inspection
Mastering the Unannounced Regulatory Inspection
SafetyChain Software
Â
Recently uploaded
(20)
MENTAL STATUS EXAMINATION format.docx
MENTAL STATUS EXAMINATION format.docx
Â
Q4-W6-Restating Informational Text Grade 3
Q4-W6-Restating Informational Text Grade 3
Â
SOCIAL AND HISTORICAL CONTEXT - LFTVD.pptx
SOCIAL AND HISTORICAL CONTEXT - LFTVD.pptx
Â
Paris 2024 Olympic Geographies - an activity
Paris 2024 Olympic Geographies - an activity
Â
A Critique of the Proposed National Education Policy Reform
A Critique of the Proposed National Education Policy Reform
Â
BASLIQ CURRENT LOOKBOOK LOOKBOOK(1) (1).pdf
BASLIQ CURRENT LOOKBOOK LOOKBOOK(1) (1).pdf
Â
Employee wellbeing at the workplace.pptx
Employee wellbeing at the workplace.pptx
Â
Solving Puzzles Benefits Everyone (English).pptx
Solving Puzzles Benefits Everyone (English).pptx
Â
Model Call Girl in Bikash Puri Delhi reach out to us at 🔝9953056974🔝
Model Call Girl in Bikash Puri Delhi reach out to us at 🔝9953056974🔝
Â
Accessible design: Minimum effort, maximum impact
Accessible design: Minimum effort, maximum impact
Â
URLs and Routing in the Odoo 17 Website App
URLs and Routing in the Odoo 17 Website App
Â
Call Girls in Dwarka Mor Delhi Contact Us 9654467111
Call Girls in Dwarka Mor Delhi Contact Us 9654467111
Â
Crayon Activity Handout For the Crayon A
Crayon Activity Handout For the Crayon A
Â
POINT- BIOCHEMISTRY SEM 2 ENZYMES UNIT 5.pptx
POINT- BIOCHEMISTRY SEM 2 ENZYMES UNIT 5.pptx
Â
The basics of sentences session 2pptx copy.pptx
The basics of sentences session 2pptx copy.pptx
Â
How to Make a Pirate ship Primary Education.pptx
How to Make a Pirate ship Primary Education.pptx
Â
CĂłdigo Creativo y Arte de Software | Unidad 1
CĂłdigo Creativo y Arte de Software | Unidad 1
Â
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Kisan Call Centre - To harness potential of ICT in Agriculture by answer farm...
Â
Staff of Color (SOC) Retention Efforts DDSD
Staff of Color (SOC) Retention Efforts DDSD
Â
Mastering the Unannounced Regulatory Inspection
Mastering the Unannounced Regulatory Inspection
Â
Monopolistic Competition
1.
Copyright©2004 South-Western 1717Monopolistic Competition
2.
Copyright © 2004
South-Western Monopolistic Competition • Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly.
3.
The Four Types
of Market Structure Copyright © 2004 South-Western • Tap water • Cable TV Monopoly (Chapter 15) • Novels • Movies Monopolistic Competition (Chapter 17) • Tennis balls • Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect • Wheat • Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms
4.
Copyright © 2004
South-Western Monopolistic Competition • Types of Imperfectly Competitive Markets • Monopolistic Competition • Many firms selling products that are similar but not identical. • Oligopoly • Only a few sellers, each offering a similar or identical product to the others.
5.
Copyright © 2004
South-Western Monopolistic Competition • Markets that have some features of competition and some features of monopoly.
6.
Copyright © 2004
South-Western Monopolistic Competition • Attributes of Monopolistic Competition • Many sellers • Product differentiation • Free entry and exit
7.
Copyright © 2004
South-Western Monopolistic Competition • Many Sellers • There are many firms competing for the same group of customers. • Product examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc.
8.
Copyright © 2004
South-Western Monopolistic Competition • Product Differentiation • Each firm produces a product that is at least slightly different from those of other firms. • Rather than being a price taker, each firm faces a downward-sloping demand curve.
9.
Copyright © 2004
South-Western Monopolistic Competition • Free Entry or Exit • Firms can enter or exit the market without restriction. • The number of firms in the market adjusts until economic profits are zero.
10.
Copyright © 2004
South-Western COMPETITION WITH DIFFERENTIATED PRODUCTS • The Monopolistically Competitive Firm in the Short Run • Short-run economic profits encourage new firms to enter the market. This: • Increases the number of products offered. • Reduces demand faced by firms already in the market. • Incumbent firms’ demand curves shift to the left. • Demand for the incumbent firms’ products fall, and their profits decline.
11.
Figure 1 Monopolistic
Competition in the Short Run Copyright©2003 Southwestern/Thomson Learning Quantity0 Price Profit- maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC
12.
Copyright © 2004
South-Western COMPETITION WITH DIFFERENTIATED PRODUCTS • The Monopolistically Competitive Firm in the Short Run • Short-run economic losses encourage firms to exit the market. This: • Decreases the number of products offered. • Increases demand faced by the remaining firms. • Shifts the remaining firms’ demand curves to the right. • Increases the remaining firms’ profits.
13.
Figure 1 Monopolistic
Competitors in the Short Run Copyright©2003 Southwestern/Thomson Learning Demand Quantity0 Price Price Loss- minimizing quantity Average total cost (b) Firm Makes Losses MR Losses ATC MC
14.
Copyright © 2004
South-Western The Long-Run Equilibrium • Firms will enter and exit until the firms are making exactly zero economic profits.
15.
Figure 2 A
Monopolistic Competitor in the Long Run Copyright©2003 Southwestern/Thomson Learning Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P =ATC
16.
Copyright © 2004
South-Western Long-Run Equilibrium • Two Characteristics • As in a monopoly, price exceeds marginal cost. • Profit maximization requires marginal revenue to equal marginal cost. • The downward-sloping demand curve makes marginal revenue less than price. • As in a competitive market, price equals average total cost. • Free entry and exit drive economic profit to zero.
17.
Copyright © 2004
South-Western Monopolistic versus Perfect Competition • There are two noteworthy differences between monopolistic and perfect competition—excess capacity and markup.
18.
Copyright © 2004
South-Western Monopolistic versus Perfect Competition • Excess Capacity • There is no excess capacity in perfect competition in the long run. • Free entry results in competitive firms producing at the point where average total cost is minimized, which is the efficient scale of the firm. • There is excess capacity in monopolistic competition in the long run. • In monopolistic competition, output is less than the efficient scale of perfect competition.
19.
Figure 3 Monopolistic
versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity0 Price Demand (a) Monopolistically Competitive Firm Quantity0 Price P = MC P = MR (demand curve) (b) Perfectly Competitive Firm MC ATC MC ATC MR Efficient scale P Quantity produced Quantity produced = Efficient scale
20.
Copyright © 2004
South-Western Monopolistic versus Perfect Competition • Markup Over Marginal Cost • For a competitive firm, price equals marginal cost. • For a monopolistically competitive firm, price exceeds marginal cost. • Because price exceeds marginal cost, an extra unit sold at the posted price means more profit for the monopolistically competitive firm.
21.
Figure 3 Monopolistic
versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity0 Price Demand (a) Monopolistically Competitive Firm Quantity0 Price P =MC P =MR (demand curve) (b) Perfectly Competitive Firm Markup MC ATC MC ATC MR Marginal cost P Quantity produced Quantity produced
22.
Figure 3 Monopolistic
versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity0 Price Demand (a) Monopolistically Competitive Firm Quantity0 Price P = MC P = MR (demand curve) (b) Perfectly Competitive Firm Markup Excess capacity MC ATC MC ATC MR Marginal cost Efficient scale P Quantity produced Quantity produced = Efficient scale
23.
Copyright © 2004
South-Western Monopolistic Competition and the Welfare of Society • Monopolistic competition does not have all the desirable properties of perfect competition.
24.
Copyright © 2004
South-Western Monopolistic Competition and the Welfare of Society • There is the normal deadweight loss of monopoly pricing in monopolistic competition caused by the markup of price over marginal cost. • However, the administrative burden of regulating the pricing of all firms that produce differentiated products would be overwhelming.
25.
Copyright © 2004
South-Western Monopolistic Competition and the Welfare of Society • Another way in which monopolistic competition may be socially inefficient is that the number of firms in the market may not be the “ideal” one. There may be too much or too little entry.
26.
Copyright © 2004
South-Western Monopolistic Competition and the Welfare of Society • Externalities of entry include: • product-variety externalities. • business-stealing externalities.
27.
Copyright © 2004
South-Western Monopolistic Competition and the Welfare of Society • The product-variety externality: • Because consumers get some consumer surplus from the introduction of a new product, entry of a new firm conveys a positive externality on consumers. • The business-stealing externality: • Because other firms lose customers and profits from the entry of a new competitor, entry of a new firm imposes a negative externality on existing firms.
28.
Copyright © 2004
South-Western ADVERTISING • When firms sell differentiated products and charge prices above marginal cost, each firm has an incentive to advertise in order to attract more buyers to its particular product.
29.
Copyright © 2004
South-Western ADVERTISING • Firms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of revenue on advertising. • Overall, about 2 percent of total revenue, or over $200 billion a year, is spent on advertising.
30.
Copyright © 2004
South-Western ADVERTISING • Critics of advertising argue that firms advertise in order to manipulate people’s tastes. • They also argue that it impedes competition by implying that products are more different than they truly are.
31.
Copyright © 2004
South-Western ADVERTISING • Defenders argue that advertising provides information to consumers • They also argue that advertising increases competition by offering a greater variety of products and prices. • The willingness of a firm to spend advertising dollars can be a signal to consumers about the quality of the product being offered.
32.
Copyright © 2004
South-Western Brand Names • Critics argue that brand names cause consumers to perceive differences that do not really exist.
33.
Copyright © 2004
South-Western Brand Names • Economists have argued that brand names may be a useful way for consumers to ensure that the goods they are buying are of high quality. • providing information about quality. • giving firms incentive to maintain high quality.
34.
Copyright © 2004
South-Western Summary • A monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free entry. • The equilibrium in a monopolistically competitive market differs from perfect competition in that each firm has excess capacity and each firm charges a price above marginal cost.
35.
Copyright © 2004
South-Western Summary • Monopolistic competition does not have all of the desirable properties of perfect competition. • There is a standard deadweight loss of monopoly caused by the markup of price over marginal cost. • The number of firms can be too large or too small.
36.
Copyright © 2004
South-Western Summary • The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. • Critics argue that firms use advertising and brand names to take advantage of consumer irrationality and to reduce competition. • Defenders argue that firms use advertising and brand names to inform consumers and to compete more vigorously on price and product quality.
Download now