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Unformatted text preview: 1 Monopolistic Competition Chapter Chapter 16 16-1 Introduction Market structure is the focus real-world competition. Market structure refers to the physical characteristics of the market within which firms interact. Introduction Market structure involves the number of firms in the market and the barriers to entry. Introduction Perfect competition, with an infinite number of firms, and monopoly, with a single firm, are polar opposites. Monopolistic competition and oligopoly lie between these two extremes. Introduction Monopolistic competition is a market structure in which there are many firms selling differentiated products. There are few barriers to entry. Introduction Oligopoly is a market structure in which there are a few interdependent firms. There are often significant barriers to entry. 2 Characteristics of Monopolistic Competition Four distinguishing characteristics: 3. *Multiple dimensions of competition make it harder to analyze a specific industry, but these methods of competition follow the same two decision rules as price competition 2. Product differentiation where the goods that are sold arent homogenous 1. Many sellers that do not take into account rivals reactions 4. Ease of entry of new firms in the long run because there are no significant barriers to entry 16-7 Output, Price, and Profit of a Monopolistic Competitor Like a monopoly, At profit maximizing output, marginal cost will be less than price Marginal revenue is below price Like a perfect competitor, zero economic profits exist in the long run The monopolistic competitive firm has some monopoly power so the firm faces a downward sloping demand curve 16-8 What is Monopolistic Competition?...
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This note was uploaded on 12/08/2011 for the course ECON 201 taught by Professor Staff during the Fall '10 term at Rio Hondo College.
- Fall '10
- Monopolistic Competition