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Chapter 6 notes - Ch 6 Notes I Monopolistic Competition a...

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Ch. 6 Notes I. Monopolistic Competition a. Based on a large number of firms, each having a relatively small share of the total market b. The product of each firm is not a perfect substitute for the products of other firms- product differentiation is thus a fundamental characteristic c. Other characteristics are the same as perfectly competitive firms d. Because of easy entry monopolistically competitive firms tend to earn only a normal profit in the long run e. Be sure to read section on advertising II. Price discrimination a. When firms charge different prices to different customers for what is essentially the same product or service and there is no difference in cost to the producer b. The seller must have price-making ability c. It must prevent re-sales of products d. The seller must divide its customers into groups each having a different willingness and ability to pay (price sensitive buyers will pay a lower price than buyers with more inelastic demand) III. Oligopoly a. When a small number of firms compete with each other, and each firm has
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Chapter 6 notes - Ch 6 Notes I Monopolistic Competition a...

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