Monopolistic Competition Chapter 17
Monopolistic Competition Chapter 17
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 Competition e Tap water e Tennis balls ● Novels Wheat e Cable Tv Crude oil Movies
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 Monopolistic Competition 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
Types of Imperfectly Competitive Markets • Monopolistic Competition – 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
Monopolistic Competition Markets that have some features of competition and some features of monopoly
Monopolistic Competition • Markets that have some features of competition and some features of monopoly
Attributes of monopolistic Competition ° Many sellers Product differentiation o Free entry and exit
Attributes of Monopolistic Competition • Many sellers • Product differentiation • Free entry and exit
Many sellers There are many firms competing for the same group of customers Product examples include books, CDs movies, computer games, restaurants, piano lessons, cookies, furniture, etc
Many Sellers • There are many firms competing for the same group of customers. • Product 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 Rather than being a price taker, each firm faces a downward-sloping demand curve
Product Differentiation • Each firm produces a product that is at least slightly different from those of other firms. • Rather than being a price taker, each firm faces a downward-sloping demand curve
Free Entry or exit Firms can enter or exit the market without restriction The number of firms in the market adjusts until economic profits are zero
Free Entry or Exit • Firms can enter or exit the market without restriction. • The 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 Average total cost Profit Demand R 0 Profit- Quantity maximizing quantity
Monopolistic Competitors in the Short Run... (a) Firm Makes a Profit Quantity 0 Price Demand MR ATC Profit MC Profitmaximizing quantity Price Average total cost
Monopolistic competitors in the short run (b) Firm Makes Losses MC ATC Price Losses Average total cost MMMMMMM/M Price}“ Demand R 0 Loss-minimizing Quantity quantity
0 Quantity Price Demand MR Losses (b) Firm Makes Losses MC ATC Average total cost Loss- minimizing quantity Price Monopolistic Competitors in the Short Run