CHAPTER_14-notes

CHAPTER_14-notes - CHAPTER 14 MONOPOLISTIC COMPETITION 1...

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CHAPTER 14: MONOPOLISTIC COMPETITION 1. What Is Monopolistic Competition? 2. The Firm’s Short-Run Output and Price Decision 3. Price and Output in Monopolistic Competition 4. Profit Maximizing Might Be Loss Minimizing 5. Long Run: Zero Economic Profit 6. Monopolistic Competition and Perfect Competition 7. Is Monopolistic Competition Efficient? 1. What Is Monopolistic Competition? Monopolistic competition is a market with the following characteristics: There are a large number of firms, with each firm producing a differentiated product. Firms compete on product quality, price, and marketing. Large Number of Firms The presence of a large number of firms in the market implies: Each firm has only a small market share and therefore has limited market power to influence the price of its product. Each firm is sensitive to the average market price, but no firm pays attention to the actions of the other, and no one firm’s actions directly affect the actions of other firms. Collusion , or conspiring to fix prices, is impossible. Product Differentiation Firms in monopolistic competition practice product differentiation , which means that each firm makes a product that is slightly different from the products of competing firms. Competing on Quality, Price, and Marketing
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CHAPTER_14-notes - CHAPTER 14 MONOPOLISTIC COMPETITION 1...

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