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ECON 1201 Lecture Notes - Lecture 27: Monopolistic Competition, Perfect Competition, Product Differentiation

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Verified Note
whitegoose773
27 Nov 2018
School
UConn
Department
Economics
Course
ECON 1201
Professor
Owen Svalestad

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ECON 1201 Lecture Notes - Lecture 24: Nash Equilibrium, Strategic Dominance, Oligopoly

27

ECON 1201 Lecture Notes - Lecture 27: Monopolistic Competition, Perfect Competition, Product Differentiation

28

ECON 1201 Lecture Notes - Lecture 28: Monopolistic Competition, Demand Curve, Product Differentiation

Document Summary

# of firms - many but not as many as pc. Ease - no barriers of entry (easy to start) Not total control over the individual price, but if their product is different enough they can charge more (egg in cage) Due to ease of barriers of entry. Why oligopolists and monopolistically competitive firms differentiate their products. How prices and profits are determined in the monopolistic competition in the short-run and the long-run. Why monopolistic competition poses a trade-off between lower prices and greater product diversity. The economic significance of advertising and brand names. When you have product differentiation you need to advertise to let consumers know. Monopolistic competition is a market structure that"s a little like monopoly and a little like perfect competition. Free entry into and exit from the industry in the long-run. Once you can create a branding for your product you move out of perfect. Competition now you can charge a higher price.

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Related Questions

A major difference between monopolistic competition and perfect competition is:

a. there are barriers to entry in monopolistic competition. There are no barriers to entry in perfectly competitive markets.

b. monopolistically competitive firms sell differentiated products. Perfectly competitive firms sell identical products.

c. government regulation restricts the ability of monopolistically competitive firms to change their prices. Perfectly competitive firms face no price regulation.

d. the market demand curve in a monopolistically competitive market slopes downward. The market demand curve in a perfectly competitive market is horizontal

1 How does monopolistic competition differ from the pure competition in its basic characteristics? From pure monopoly? Explain fully what product differentiation may involve. Please explain how the entry of firms into its industry affects the demand curve facing a monopolistic competitor and how that, in turn, affects its economic profit.

2 "Competition in quality and service may be just as effective as price competition in giving buyers more for their money." Do you agree? Why? Explain why monopolistically competitive firms frequently prefer nonprice to price competition.

3 Critically evaluate and explain:
a. In monopolistically competitive industries, economic profits compete away in the long run; hence, there is no valid reason to criticize such industries' performance and efficiency.
b. In the long run, monopolistic competition leads to a monopolistic price but not to monopolistic profits.

1) A natural monopoly exists when:

a. A few firms collude to make one large firm

b. Firms enter the industry as a result of profit incentives

c. Economies of scale provide large cost advantages to having one firm produce the industry's output

d. Firms naturally maximize regardless of market structure

 

2) A(n) ____ is a single firm with ___, whereas a(n) ___ implies an industry with ____ firm(s) and ____ .

a. Monopoly; barriers to entry; oligopoly; few; no barriers to entry

b. Oligopoly; no barriers to entry; monopoly; many; easy entry and exit

c. Monopoly; barriers to entry; monopolistic competition; many; easy entry and exit

d. Monopolistic competitor; barriers to entry; monopoly; one; barriers to entry

 

3) In monopolistic competition:

a. Each firm produces a product identical to that of every other firm in the industry

b. Firms are aware of their strategic interdependence

c. Firms earn large economic profits in the long run

d. Firms earn zero economic profits in the long run

 

4) A monopolistically competitive industry, such as corn snack chips, and a perfectly competitive industry, like wheat farming, are alike in that:

a. There are many firms in each industry

b. Firms in both types of industries produce similar but not identical products

c. Barriers to entry in both industries are large

d. Firms in both types of industries produce identical products