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Economics Chapter 14 Monopolistic Competition.docx

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ECON 1050
Eveline Adomait

Chapter 14 Monopolistic Competition A market structure in which - large # of firms compete - each firm produces differentiated product - firms compete on product quality, price, marketing - firms are free to enter/ exit industry Large # of firms Small market share- each firm supplies small part of total industry output. Thus each firm has limited ability to influence price of product Ignore other firms- firms only sensitive to average market price of product Collusion impossible- many firms mean difficult to conspire and fix higher price Product differentiation- makes product that is slightly different from competition Competing on quality, price, marketing Quality- physical attributes that make it different from products of other firms Price- downward sloping demand curve, so they can set own price and output Marketing- must market bc of product differentiation Entry and Exit - no barrier to enter and exit in long run - cannot make an economic profit in long run Examples: household furniture, lighting fixtures, paint, bakeries, sports and athletic things, boat building, plastic bags, clothing, etc. Price and Output - economic profit maximized when marginal cost equals marginal revenue
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