Chapter 17 Monopolistic Competition By the end of this chapter, students should understand: competition among firms that sell differentiated products. how the outcomes under monopolistic competition and under perfect competition compare. the desirability of outcomes in monopolistically competitive markets. the debate over the effects of advertising. the debate over the role of brand names. Student Understanding of Content: Chapter 17 is the final chapter in a five-chapter sequence dealing with firm behavior and the organization of industry. Chapters 14 and 15 developed the two extreme forms of market structure—competition and monopoly. The market structure that lies between competition and monopoly is known as imperfect competition. There are two types of imperfect competition— oligopoly, which was addressed in the previous chapter, and monopolistic competition, which is the topic of the current chapter. The analysis in this chapter is again based on the cost curves developed in Chapter 13. The purpose of Chapter 17 is to address monopolistic competition —a market structure in which many firms sell products that are similar but not identical. Recall, oligopoly differs from perfect competition because there are only a few sellers in the market. Monopolistic competition differs from perfect competition because each of the many sellers offers a somewhat different product. As a result, monopolistically competitive firms face a downward-sloping demand curve while competitive firms face a horizontal demand curve at the market price. Monopolistic competition is extremely common. KEY POINTS:
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