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https://quizlet.com/_4ky6im

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https://docs.google.com/document/d/1gPMKkm2ZO4VA7WyI2chmFCM8MVdwuGhroNUvpthhTi8/edit

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competition

P = MC

entry and exit

long run P = min ATC

many firms

price takers

monopolistic

P > MC

barriers to entry

DWL w/ positive economic

one firm

price makers

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oligopoly
monopolistic competition

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cereal, laundry equipment, cigarettes

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many sellers

product differentiation

downward sloping demand curve

free entry and exit

long run economic profit of zero

price makers

books, restaurants, cookies... most things!

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an oligopoly is not perfect competition because of the number of sellers is WRONG

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an oligopoly is not perfect competition because of the number of sellers is WRONG

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monopolistic competition is not perfect competition because the products are differentiated

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monopolistic competition is not perfect competition because the products are differentiated

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Monopolistic Competitive Firm in the Short Run

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Monopolistic Competitive Firm in the Short Run

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downward sloping demand curve

MR = MC up to D for profit-max

SAME AS MONOPOLY GRAPHS FOR PROFIT AND LOSSES

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short run profits --> entry --> demand shifts left --> profits decrease --> economic profit goes to zero

short run losses --> exit --> demand shifts right --> loss decreases --> economic profits go to zero

**long-run demand is TANGENT to the declining portion of ATC (not at min ATC)**

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1. excess capacity
- difference between profit max Q and efficient scale Q
- firms don't produce here because not as high of profit
2. markup
- difference between price and marginal cost (P > MC)

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Monopolistic Competition and Welfare in Society

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Monopolistic Competition and Welfare in Society

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source of inefficiency = markup!
--> deadweight loss

source of inefficiency = number of firms may not be ideal

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product-variety externality: increase in CS
business stealing externality: lose customers

total surplus is NOT maximized

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highly differentiated products: spend 10-20% on advertising

industrial products: very little

homogeneous products: none

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Critics:

manipulates tastes

impedes competition

no information

more inelastic demand

Defenders:

provides information to customers (prices, existence, location)

fosters competition

more elastic demand curve

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even if ad doesn't really explain product...

The extensive amount of CA$H spent on ads can give insight to the high quality of the product

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- spend more on advertising so their prices are slightly higher

brand names are useful!
1. information on quality (name recognition)
2. firm has incentive maintain quality (reputation)