olgopoly

olgopoly - FromPerfectCompetitionto MonopolisticCompetition...

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From Perfect Competition to  Monopolistic Competition Monopolistic Competition Oligopoly Wednesday: Wage Determination
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Monopolistic Competition Monopolistic Competition Many firms Less Elastic Demand ( but still elastic) MR = MC No control of Market Price Some control of their own price Differentiated products Advertising Character of the Product No barriers to entry No long Run Profits Restaurants ** firms enter when they see that profits are being made Pure Competition Many firms Perfectly Elastic Demand P = MC No control over Price Neither market or own Price Same Product Advertise as an industry No barriers to entry No long Run Profits Agriculture/Dairy
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Advertising Makes demand less elastic Supporters Makes consumers aware of choices Makes consumers aware of particular product Differentiates a product Opponents Contains little information Distorts consumer preferences Is wasteful use of resources
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Product Differentiation Proponents Consumers prefer variety over sameness Higher quality products will prevail over lesser quality products Consumers need to know of substitutes Advertising is the only way to inform consumers Opponents Differentiation and advertising are a misuse of resources Highlight small or non-existent distinctions between brands Advertising influences consumer preferences Advertising reduces buyers ability to choose rationally Advertising costs creates a barrier to entry
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Monopolistic Competition Similar to Monopoly Demand is downward sloping More elastic than monopoly Close substitutes MR = MC No long run normal profits due to ease of entry/exit Profits attract new firms Price Q D MR MC Q* P* ATC
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Monopolistic Competition New entry lessens the demand for each firm’s product Causes the demand curve to shift to the left for the individual firm Closer to the ATC Price Q D MR MC Q* P* ATC
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Monopolistic Competition Price Quantity MC ATC D MR P* Q* D’ P’ MR’ Profits Before new firms enter the industry MR = MC
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Monopolistic Competition Price Quantity MC ATC D MR P* Q* D’ P’ MR’ Profits After firms enter the industry Excess Capacity
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olgopoly - FromPerfectCompetitionto MonopolisticCompetition...

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