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- 2. Monopolistic Competition Imperfect competition refers to those market structures that fall between perfect competition and pure
- 3. The Four Types of Market Structure Copyright © 2004 South-Western
- 4. Monopolistic Competition Types of Imperfectly Competitive Markets Monopolistic Competition Many firms selling products that are similar
- 5. Monopolistic Competition Markets that have some features of competition and some features of monopoly.
- 6. Monopolistic Competition Attributes of Monopolistic Competition Many sellers Product differentiation Free entry and exit
- 7. Monopolistic Competition Many Sellers There are many firms competing for the same group of customers. Product
- 8. Monopolistic Competition Product Differentiation Each firm produces a product that is at least slightly different from
- 9. Monopolistic Competition Free Entry or Exit Firms can enter or exit the market without restriction. The
- 10. COMPETITION WITH DIFFERENTIATED PRODUCTS The Monopolistically Competitive Firm in the Short Run Short-run economic profits encourage
- 11. Figure 1 Monopolistic Competition in the Short Run Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price (a) Firm
- 12. COMPETITION WITH DIFFERENTIATED PRODUCTS The Monopolistically Competitive Firm in the Short Run Short-run economic losses encourage
- 13. Figure 1 Monopolistic Competitors in the Short Run Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price (b) Firm
- 14. The Long-Run Equilibrium Firms will enter and exit until the firms are making exactly zero economic
- 15. Figure 2 A Monopolistic Competitor in the Long Run Copyright©2003 Southwestern/Thomson Learning Quantity Price 0
- 16. Long-Run Equilibrium Two Characteristics As in a monopoly, price exceeds marginal cost. Profit maximization requires marginal
- 17. Monopolistic versus Perfect Competition There are two noteworthy differences between monopolistic and perfect competition—excess capacity and
- 18. Monopolistic versus Perfect Competition Excess Capacity There is no excess capacity in perfect competition in the
- 19. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price (a) Monopolistically Competitive Firm
- 20. Monopolistic versus Perfect Competition Markup Over Marginal Cost For a competitive firm, price equals marginal cost.
- 21. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price (a) Monopolistically Competitive Firm
- 22. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price (a) Monopolistically Competitive Firm
- 23. Monopolistic Competition and the Welfare of Society Monopolistic competition does not have all the desirable properties
- 24. Monopolistic Competition and the Welfare of Society There is the normal deadweight loss of monopoly pricing
- 25. Monopolistic Competition and the Welfare of Society Another way in which monopolistic competition may be socially
- 26. Monopolistic Competition and the Welfare of Society Externalities of entry include: product-variety externalities. business-stealing externalities.
- 27. Monopolistic Competition and the Welfare of Society The product-variety externality: Because consumers get some consumer surplus
- 28. ADVERTISING When firms sell differentiated products and charge prices above marginal cost, each firm has an
- 29. ADVERTISING Firms that sell highly differentiated consumer goods typically spend between 10 and 20 percent of
- 30. ADVERTISING Critics of advertising argue that firms advertise in order to manipulate people’s tastes. They also
- 31. ADVERTISING Defenders argue that advertising provides information to consumers They also argue that advertising increases competition
- 32. Brand Names Critics argue that brand names cause consumers to perceive differences that do not really
- 33. Brand Names Economists have argued that brand names may be a useful way for consumers to
- 34. Summary A monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free
- 35. Summary Monopolistic competition does not have all of the desirable properties of perfect competition. There is
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