Chapter11 PowerPoint Slides - Monop Comp and Oligopoly

Chapter11 PowerPoint Slides - Monop Comp and Oligopoly -...

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Strategic Choice in Oligopoly, Monopolistic Competition, and Everyday Life Chapter 11
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Review of Perfect Competition Many buyers and sellers Product is identical Easy entry and exit in the industry No economic profit in the long run
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Review of Monopoly One supplier Unique product with no close substitutes Significant barriers to entry keep out competition Can make economic profits in the long run
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Monopolistic Competition Market Structure Many suppliers Products are not identical, but serve as close substitutes to each other Demand slopes downward so that suppliers have some power over the price These firms are price makers Low barriers to entry so that firms can enter and exit easily The action of one firm doesn’t affect the other firms in the industry because firms are small
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MONOPOLISTIC COMPETITION IS CLOSER TO PERFECT COMPETITION THAN MONOPOLY
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Product Differentiation in Monopolistic Competition The goods are very similar to each other in monopolistic competition, so the firms work hard to point out the differences in their products. Physical Differences-toothpaste Location- convenience stores, shampoo Services-pizza, Amazon Product Image-endorsements
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Profit Maximization in the Short-Run in Monop. Comp. Monopolistic competitors have some market power which means that each firm is facing a downward sloping demand curve. The demand curve in monopolistic competition is more elastic than a monopolist’s (because of presence of substitutes), but less elastic than perfect competition.
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Monopolistic Competition in the Short-Run Graph of Monopolistic Competition Firm Profit maximizing means producing output where: MARGINAL REVENUE = MARGINAL COST Find the price to charge by reading it off of the demand curve, as in monopoly Monopolistic competition firms can make economic profits or losses in the short-run.
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Monopolistic Competition has NO SUPPLY CURVE as there is no single curve that can show all of the combinations of price and quantity supplied that can exist in this market.
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Monopolistic Competition in the Long Run Short-run profit maximization by monopolistic competition firms looks very much like monopoly. However, the crucial difference between monopoly and monopolistic competition in the long run is that there are low barriers to entry in monopolistic competition.
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Short-Run Profits & Monopolistic Competition in the Long Run With low barriers to entry, the presence of economic profits will attract new firms to the industry in the long run. This will lure customers away from the firms already present in the market, reducing demand faced by the existing firms. Entry of new firms also makes the existing firms’ demand curves more elastic.
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