2023Ch11SumMcBr - Monopolistic Competition Oligopoly...

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Monopolistic Competition Oligopoly Chapter 11
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Outline Imperfect competition Characteristics of monopolistic competition Total revenue – total cost method Marginal revenue – marginal cost method Monopolistic competition in the long run Characteristics of oligopoly Oligopoly and the most profitable output The kinked demand curve Non-collusive oligopoly Collusion, cartels and price leadership Comparisons to perfect competition Advertising Research and development
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Imperfect competition The opposite of perfect competition is imperfect competition, as you might think. Perfectly competitive firms are price takers and have demand schedules that are perfectly elastic. Imperfectly competitive firms have power to influence the market and can affect the price of the product through their actions. Any firm that has power in the market, no matter how much, faces a downward sloping demand schedule and a marginal revenue schedule that is below demand. Pure monopoly is one example of imperfect competition, but industries that fall in this category are a very small percentage of the economy. Most of economic activity falls under either monopolistic competition or oligopoly, the other two models for imperfect competition.
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Characteristics of monopolistic competition The characteristics of the monopolistic competition model are: many firms in the industry firms produce differentiated products each firm has some power to affect the market there is considerable emphasis on advertising entry into the field is easy when profitable Monopolistically competitive firms are small, but each firm has some power to affect the market and price. For this reason, the firm is considered a price maker as under monopoly. Clothing stores, shoe stores and restaurants would be examples.
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Differentiated products Perfectly competitive industries have a very large number of firms, each selling identical products. Monopolistically competitive industries have many firms (not nearly as many as under perfect competition, however), but each firm sells a differentiated product. Thus, there is considerable emphasis on advertising and sales promotion. The same applies to oligopolistic firms that sell differentiated products. Under monopolistic competition and oligopoly, products can be different by quality, but also by service. For example, Toyota competes by quality whereas Hyundai competes by its ten-year warranty. Other ways products can be different (and lead to differences in prices) can be through brand name recognition, package design and appearance, location of store, and convenience (7-11).
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Total revenue – total cost method To find the most profitable level of output for a firm under monopolistic competition, there are once again the total revenue–total cost approach and the marginal method.
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This note was uploaded on 02/22/2011 for the course ECON 2023 taught by Professor Meier during the Spring '11 term at St. Petersburg College.

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2023Ch11SumMcBr - Monopolistic Competition Oligopoly...

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