141_Chapter_15_Lecture_Outline - Weekly Outline Lectures

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Chapter 15 BRIEF CHAPTER OUTLINE Industry Characteristics p. 304 Product Differentiation and Advertising p. 305 How Many Varieties? How Do Firms Differentiate Products? Advertising Price and Output Determination in Monopolistic Competition p. 313 Product Differentiation and Demand Elasticity Price/Output Determination in the Short Run Price/Output Determination in the Long Run Economic Efficiency and Resource Allocation p. 316 DETAILED CHAPTER I. Introduction, pages 303-304 A. A monopolistically competitive industry is similar to a perfectly competitive industry in the following ways. 1. Many small sellers and many small buyers. 2. Low-cost entry and exit. B. The key difference is non-homogeneous output. 1. Monopolistically competitive firms produce differentiated products that are similar, but not identical to each other. 2. Since products are differentiated, a firm can potentially raise the price being charged and still not lose too much business. C. Questions we’d like answered: 1. Why do we see a dozen different types of shampoo in a store? Is a dozen too many, too few, or just the right amount? 2. Why are beverages and automobiles advertised a great deal but semiconductors and economics textbooks are not? 3. Advertising is expensive: Is it a waste of money, or does it serve some social function? 4. Can consumers ever be offered too many choices? Why does nutritional cereal sell better in the extra large size while candy sells better by the bar? II. Industry Characteristics, pages 304-305 171
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172   Principles of Microeconomics A. Monopolistic competition is a common form of industry (market) structure in the United States, characterized by a large number of firms, no barriers to entry, and product differentiation. B A majority of businesses in the U.S. operate in monopolistically competitive industries. 1. A quick Yahoo! search of the San Francisco area for restaurants got 8,083 hits. There are many, many restaurants in the U.S.
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This note was uploaded on 06/15/2010 for the course EC 142DLB taught by Professor Graceonodipe during the Spring '10 term at Park.

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141_Chapter_15_Lecture_Outline - Weekly Outline Lectures

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