Chapter 16 Monopolistic Competition

Chapter 16 - Chapter16:Monopolistic Competition I Monopolistic Competition A Conditions 1 Many Producers 2 Free Entry Exit in Long Run 3

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Chapter 16: Monopolistic Competition Page 1 of 8 I. Monopolistic Competition A. Conditions 1. Many Producers 2. Free Entry & Exit in Long Run 3. Differentiated Products: Each producer has a product that consumers view as somewhat distinct from the competing firms. Distinct yet similar – Close substitutes B. Different in 2 important ways 1. Not Perfect Competition b/c producers have some Market power 2. Not Monopoly b/c firms face some competition
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Page 2 of 8 C. Types of Differentiation: 1. By Style or Type 2. By Location 3. By Quality Differentiation has 2 effects: (Externalities) 1. Business Stealing Externality: firms lose customers/profits when other firms enter a market 2. Product variety externality: Consumers get some consumer surplus from the introduction of a new product.
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Page 3 of 8 II. Monopolistic Competition in the Short-Run
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Page 5 of 8 III. Long Run If the typical firm incurs losses, some existing firms will exit the industry in the long run, shifting the demand curve of each remaining firm to the right. If the typical firm earns positive profits, new firms will enter the industry in the
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This note was uploaded on 12/05/2011 for the course ECON 101 taught by Professor Dezhbakhsh during the Fall '07 term at Emory.

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Chapter 16 - Chapter16:Monopolistic Competition I Monopolistic Competition A Conditions 1 Many Producers 2 Free Entry Exit in Long Run 3

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