econchap17 - Monopolistic Competition Monopolistic...

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1 Monopolistic Competition Chapter 17 Monopolistic Competition s Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. The Four Types of Market Structure • 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 Monopolistic Competition s Types of Imperfectly Competitive Markets b Monopolistic Competition s Many firms selling products that are similar but not identical. b Oligopoly s Only a few sellers, each offering a similar or identical product to the others. Monopolistic Competition s Markets that have some features of competition and some features of monopoly. s Attributes of monopolistic competition: b Many sellers b Product differentiation b Free entry and exit Monopolistic Competition s Many Sellers b There are many firms competing for the same group of customers. s Product examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc.
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2 Monopolistic Competition s Product Differentiation b Each firm produces a product that is at least slightly different from those of other firms. b Rather than being a price taker, each firm faces a downward-sloping demand curve . Monopolistic Competition s Free Entry or Exit s Firms can enter or exit the market without restriction. s The number of firms in the market adjusts until economic profits are zero. COMPETITION WITH DIFFERENTIATED PRODUCTS s The Monopolistically Competitive Firm in the Short Run b Short-run economic profits encourage new firms to enter the market. This: s Increases the number of products offered. s
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econchap17 - Monopolistic Competition Monopolistic...

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