ECON 1050 Lecture : Monopolistic Competition

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Price and output decisions in the long run and the short run advertising costs and the importance of brand names. Monopolistic competition: market structure defined by: large number of competing firms. Each firm has small market share limited influence on product price. Each firm sensitive to average market price, but no firm pays attention to others" actions: no one firm"s actions directly affect the actions of others. Collusion: conspiring to fix prices; impossible in this competition: differentiated products. Each firm makes a slightly different product than competing firms. Marketing required: competition based on quality, price, and marketing. Demand for each firm"s product is downward sloping tradeoff between price and quality: free entry and exit firms cannot make an economic profit in the long run examples: av equipment, clothing, jewelry, computers, sporting goods. Highest price that the firm can charge for the pmq. The firm in monopolistic competition operates like a single-price monopoly.

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