AUECO101 Lecture Notes - Lecture 16: Monopolistic Competition, Imperfect Competition, Perfect Competition

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Monopolistic competition: the term monopolistic competition might at first seem to be an oxymoron, but as we will see, monopolistically competitive industries are monopolistic in some ways and competitive in others. Thus, rather than being a price taker, each firm faces a downward-slopping demand curve: free entry and exit: firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero. Monopolistic versus perfect competition competition: (not on the exam: there are two noteworthy differences between monopolistic and perfect, excess capacity is this an economic efficient situation, markup price above what would be idea. If you can bump the demand curve out, you get market shares increases the price for the good. The critique of advertising: advertising manipulates people"s tastes, advertising impedes competition. The defense of advertising: advertising provides information to customers, advertising fosters competition.

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