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Unformatted text preview: 1 Econ 1, Winter 2008 RATIKA NARAG, Ph.D. LECTURE 17 Type of market # of firms Freedom of entry Nature of product Implications for demand curve faced by firm Perfect competition Very many Unrestricted Homogeneous (undifferentiated) Horizontal: firm is a price taker Monopolistic competition Many / several Unrestricted Differentiated Downward sloping, but relatively elastic Oligopoly Few Restricted Undifferentiated or differentiated Downward sloping. Relatively inelastic (shape depends on reactions of rivals) Monopoly One Restricted or completely blocked Unique Downward sloping: more inelastic than oligopoly. Firm has considerable control over price LECTURE 17 Monopolistic Competition Many firms: each ignores the actions and reactions of its many competitors Free entry and exit: economic profits bring entry which takes demand away from existing firms products Firms produce one variety of the industrys differentiated product; negatively sloped DD curve, but very elastic LECTURE 17 Monopolistic Competition Large number of firms such that each seller has many competitors (e.g. many gas stations along a highway) Each seller has a product that consumers view as somewhat different from competing sellers (yet is considered a close substitute) Free entry/exit in the LR LECTURE 17 Monopolistic Competition Different from Perfect Competition as firms have some (market) power to set prices Different from Monopoly as firms face some competition LECTURE 17 Product Differentiation Product Differentiation allows monopolistically competitive firms to acquire some market...
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