Monopolistic Competition Chapter 17 Copyright C 2001 by Harcourt, Inc All rights reserved. Requests for permission to make copies of any part of t work should be mailed to Permissions Department, Harcourt College Publishers 6277 Sea Harbor Drive. Orlando Florida 32887-6777
Monopolistic Competition Chapter 17 Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777
The Four Types of Market Structure Number of firms? Many firms One firm/Few Type of Products? firms Differentiated Identical products products Monopoly oligopoly Monopolistic Perfect Competition Competitio Tap water Tennis balls Novels Wheat Cable v Crude oil Movies o Milk H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. The Four Types of Market Structure Monopoly Oligopoly Monopolistic Competition Perfect Competition • Tap water • Cable TV • Tennis balls • Crude oil • Novels • Movies • Wheat • Milk Number of Firms? Type of Products? Many firms One firm Few firms Differentiated products Identical products
Types of Imperfectly Competitive Markets o Monopolistic Competition o Many firms selling products that are similar but not identical ◆ Oligopoly Only a few sellers, each offering a similar or identical product to the others. H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Types of Imperfectly Competitive Markets uMonopolistic Competition uMany firms selling products that are similar but not identical. u Oligopoly uOnly a few sellers, each offering a similar or identical product to the others
Monopolistic Competition Markets that have some features of competition and some features of monopoly Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopolistic Competition Markets that have some features of competition and some features of monopoly
Attributes of Monopolistic Competition ◆ Many sellers e Product differentiation ◆ Free entry and exit H arc Inc items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Attributes of Monopolistic Competition uMany sellers uProduct differentiation uFree entry and exit
Many Sellers There are many firms competing for the same group of customers o Product examples include books, CDS, movies, computer games, restaurants, piano lessons, cookies, furniture, etc. H arc Inc items and derived items copyright C 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Many Sellers There are many firms competing for the same group of customers. uProduct examples include books, CDs, movies, computer games, restaurants, piano lessons, cookies, furniture, etc
Product Differentiation Each firm produces a product that is at least slightly different from those of other firms o Rather than being a price taker, each firm faces a downward-sloping demand curve H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Product Differentiation uEach firm produces a product that is at least slightly different from those of other firms. uRather than being a price taker, each firm faces a downward-sloping demand curve
Free Entry or Exit e Firms can enter or exit the market without restriction。 o The number of firms in the market adjusts until economic profits are Zero。 8公个个 H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Free Entry or Exit uFirms can enter or exit the market without restriction. uThe number of firms in the market adjusts until economic profits are zero
Monopolistic Competitors in the short run (a Firm Makes a Profit Price MC ATC Price laaaasasaaa Average… total cost Profit Demand MR 0 Profit maximizing quantity Quantity H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopolistic Competitors in the Short Run... (a) Firm Makes a Profit Quantity 0 Price Demand MR ATC Profit MC Profit- maximizing quantity Price Average total cost
Monopolistic Competitors in the short run ■■■ (b Firm Makes Losses MC ATC Price Losses Average total cost M Price... eman MR 0 LOss Quantity mInImIzing quantity H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopolistic Competitors in the Short Run... 0 Quantity Price Demand MR Losses (b) Firm Makes Losses MC ATC Average total cost Loss- minimizing quantity Price
