Chapter 12 Oligopoly

Chapter 12 Oligopoly - Introduction Monopolistic...

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Chapter 12 Chapter 12 Chapter 12 Monopolistic Competition and Oligopoly Monopolistic Competition and Oligopoly Monopolistic Perfect Comp Oligopoly Monopoly Introduction • Monopolistic competition : similar to a perfectly competitive market in two key respects: 1. There are many firms. 2. No barrier to entry. • But it differs from perfect competition in that the product is differentiated. • Oligopoly: a market in which a few firms compete with one another, and entry by new firms is impeded. • The product that firms produce might be differentiated, or it not might be. Monopolistic Competition • A monopolistically competitive market has two key characteristics: 1. Differentiated products that are highly substitutable for one another but not perfect. 2. Free entry and exist. Equilibrium in SR and LR • Monopolistic competition firms face downward-sloping demand curves. (Note: Because the firm’s product differs, its demand curve is downward sloping ) • There is free entry, However, the potential to earn profits will attract new firms with competing brands, driving economic profits down to zero. • In the short run, firm might have economic profits but in the long run, this profit will induce entry by other firms. • The long-run demand curve D
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Chapter 12 Oligopoly - Introduction Monopolistic...

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