Principles of Economics- Mankiw (5th) 367

Principles of Economics- Mankiw (5th) 367 - for your...

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IN THIS CHAPTER YOU WILL . . . Examine the debate over the role of brand names Consider the desirability of outcomes in monopolistically competitive markets Analyze competition among firms that sell differentiated products Compare the outcome under monopolistic competition and under perfect competition Examine the debate over the effects of advertising You walk into a bookstore to buy a book to read during your next vacation. On the store’s shelves you find a John Grisham mystery, a Stephen King thriller, a Danielle Steel romance, a Frank McCourt memoir, and many other choices. When you pick out a book and buy it, what kind of market are you participating in? On the one hand, the market for books seems competitive. As you look over the shelves at your bookstore, you find many authors and many publishers vying
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Unformatted text preview: for your attention. A buyer in this market has thousands of competing products from which to choose. And because anyone can enter the industry by writing and publishing a book, the book business is not very profitable. For every highly paid novelist, there are hundreds of struggling ones. On the other hand, the market for books seems monopolistic. Because each book is unique, publishers have some latitude in choosing what price to charge. The sellers in this market are price makers rather than price takers. And, indeed, the price of books greatly exceeds marginal cost. The price of a typical hardcover M O N O P O L I S T I C C O M P E T I T I O N 377...
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