Unit 9 Monopolistic_Competition

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1、9MonopolisticCompetition(PrinciplesofEconomics,Chapter16)MonopolisticCompetitionImperfectcompetitionreferstothosemarketstructuresthatfallbetweenperfectcompetitionandpuremonopoly.TheFourTypesofMarketStructureCopyright©2004South-Western•Tapwater•CableTVMonopoly(Chapter15)•Novels•MoviesMono

2、polisticCompetition(Chapter16)•Tennisballs•CrudeoilOligopoly(Chapter17)NumberofFirms?Perfect•Wheat•MilkCompetition(Chapter14)TypeofProducts?IdenticalproductsDifferentiatedproductsOnefirmFewfirmsManyfirmsMonopolisticCompetitionTypesofImperfectlyCompetitiveMarketsMonopolisticCompetitionMan

3、yfirmssellingproductsthataresimilarbutnotidentical.OligopolyOnlyafewsellers,eachofferingasimilaroridenticalproducttotheothers.MonopolisticCompetitionMarketsthathavesomefeaturesofcompetitionandsomefeaturesofmonopoly.MonopolisticCompetitionAttributesofMonopolisticCompetitionManysellersProd

4、uctdifferentiationFreeentryandexitMonopolisticCompetitionManySellersTherearemanyfirmscompetingforthesamegroupofcustomers.Productexamplesincludebooks,CDs,movies,computergames,restaurants,pianolessons,cookies,furniture,etc.MonopolisticCompetitionProductDifferentiationEachfirmproducesaprodu

5、ctthatisatleastslightlydifferentfromthoseofotherfirms.Ratherthanbeingapricetaker,eachfirmfacesadownward-slopingdemandcurve.MonopolisticCompetitionFreeEntryorExitFirmscanenterorexitthemarketwithoutrestriction.Thenumberoffirmsinthemarketadjustsuntileconomicprofitsarezero.COMPETITIONWITHDIF

6、FERENTIATEDPRODUCTSTheMonopolisticallyCompetitiveFirmintheShortRunShort-runeconomicprofitsencouragenewfirmstoenterthemarket.This:Increasesthenumberofproductsoffered.Reducesdemandfacedbyfirmsalreadyinthemarket.Incumbentfirms’demandcurvesshifttotheleft.Demandfortheincumbentfirms’productsfa

7、ll,andtheirprofitsdecline.Figure1MonopolisticCompetitionintheShortRunCopyright©2003Southwestern/ThomsonLearningQuantity0PriceProfit-maximizingquantityPriceDemandMRATC(a)FirmMakesProfitAveragetotalcostProfitMCCOMPETITIONWITHDIFFERENTIATEDPRODUCTSTheMonopolisticallyCompetit