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    Monopolist C I

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    ragib rahman
    This document discusses monopolistic competition, comparing it to monopoly and perfect competition. It describes the characteristics of monopolistic competition including many sellers and product differentiation. Examples given are apartments, books, bottled water, clothing, fast food, and night clubs. Short-run and long-run equilibrium for a monopolistically competitive firm is examined.

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    Monopolist C I

    Uploaded by

    ragib rahman
    55 views10 pages
    This document discusses monopolistic competition, comparing it to monopoly and perfect competition. It describes the characteristics of monopolistic competition including many sellers and product differentiation. Examples given are apartments, books, bottled water, clothing, fast food, and night clubs. Short-run and long-run equilibrium for a monopolistically competitive firm is examined.

    Original Description:

    MONOPOLIST Discussion Based on BD

    Original Title

    Monopolist c i

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    This document discusses monopolistic competition, comparing it to monopoly and perfect competition. It describes the characteristics of monopolistic competition including many sellers and product differentiation. Examples given are apartments, books, bottled water, clothing, fast food, and night clubs. Short-run and long-run equilibrium for a monopolistically competitive firm is examined.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    55 views10 pages

    Monopolist C I

    Uploaded by

    ragib rahman
    This document discusses monopolistic competition, comparing it to monopoly and perfect competition. It describes the characteristics of monopolistic competition including many sellers and product differentiation. Examples given are apartments, books, bottled water, clothing, fast food, and night clubs. Short-run and long-run equilibrium for a monopolistically competitive firm is examined.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 10

    CHAPTER

    16

    Monopolistic Competition

    © 2009 South-Western, a part of Cengage Learning, all rights reserved


    Introduction:
    Between Monopoly and Competition
    Two extremes
     Perfect competition: many firms, identical
    products
     Monopoly: one firm
    In between these extremes: imperfect competition
     Oligopoly: only a few sellers offer similar or
    identical products.
     Monopolistic competition: many firms sell
    similar but not identical products.

    MONOPOLISTIC COMPETITION 2
    Characteristics & Examples
    of Monopolistic Competition
    Characteristics:
     Many sellers
     Product differentiation
     Free entry and exit
    Examples:
     apartments
     books
     bottled water
     clothing
     fast food
     night clubs
    MONOPOLISTIC COMPETITION 3
    Comparing Perfect & Monop. Competition
    Perfect Monopolistic
    competition competition

    number of sellers many many


    free entry/exit yes yes

    long-run econ. profits zero zero

    the products firms sell identical differentiated

    firm has market power? none, price-taker yes


    downward-
    D curve facing firm horizontal
    sloping

    MONOPOLISTIC COMPETITION 4
    Comparing Monopoly & Monop. Competition
    Monopolistic
    Monopoly
    competition
    number of sellers one many

    free entry/exit no yes

    long-run econ. profits positive zero

    firm has market power? yes yes


    downward-
    downward-
    D curve facing firm sloping
    sloping
    (market demand)
    close substitutes none many
    MONOPOLISTIC COMPETITION 5
    A Monopolistically Competitive Firm
    Earning Profits in the Short Run
    The firm faces a
    downward-sloping
    D curve. Price
    profit MC
    At each Q, MR < P. ATC
    P
    To maximize profit,
    ATC
    firm produces Q D
    where MR = MC.
    The firm uses the MR
    D curve to set P.
    Q Quantity

    MONOPOLISTIC COMPETITION 6
    A Monopolistically Competitive Firm
    With Losses in the Short Run
    For this firm,
    P < ATC
    Price
    at the output where MC
    MR = MC.
    losses ATC
    The best this firm ATC
    can do is to
    P
    minimize its losses.
    D
    MR
    Q Quantity

    MONOPOLISTIC COMPETITION 7
    Monopolistic Competition and Monopoly
     Short run: Under monopolistic competition,
    firm behavior is very similar to monopoly.
     Long run: In monopolistic competition,
    entry and exit drive economic profit to zero.
     If profits in the short run:
    New firms enter market,
    taking some demand away from existing firms,
    prices and profits fall.
     If losses in the short run:
    Some firms exit the market,
    remaining firms enjoy higher demand and prices.

    MONOPOLISTIC COMPETITION 8
    A Monopolistic Competitor in the Long Run
    Entry and exit
    occurs until
    P = ATC and profit Price
    = zero. MC

    Notice that the ATC


    firm charges a P = ATC
    markup of price markup
    over marginal cost
    D
    and does not MC MR
    produce at
    minimum ATC. Q Quantity

    MONOPOLISTIC COMPETITION 9
    Why Monopolistic Competition Is
    Less Efficient than Perfect Competition
    1. Excess capacity
     The monopolistic competitor operates on the
    downward-sloping part of its ATC curve,
    produces less than the cost-minimizing output.
     Under perfect competition, firms produce the
    quantity that minimizes ATC.

    2. Markup over marginal cost


     Under monopolistic competition, P > MC.
     Under perfect competition, P = MC.

    MONOPOLISTIC COMPETITION 10

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