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Chapter 14 Notes.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Emilie Rivers
Semester
Fall

Description
Economics Chapter 14 Lecture Notes Textbook Notes, p324-329 What is Monopolistic Competition?  A large number of firms compete  Each firm produces a differentiated product  Firms compete on product quality, price and marketing  Firms are free to enter and exit the industry -Large Number of Firms  Small market share – each firm supplies a small part of the total industry output, limited power to influence price of its product, price can only be slightly different from competition’s price  Ignore other firms – no one firm can dictate market conditions, no one firm’s actions directly affect the actions of the other firms  Collusion impossible – conspire to fix a higher price, coordination difficult -Product Differentiation  Makes a product that is slightly different from the products of competing firms  Close substitute but not perfect substitute -Competing on Quality, Price and Marketing  Quality – physical attributes, high or low quality  Price – downward sloping demand curve, high quality = high price  Marketing – advertising and packaging -Entry and Exit  No barriers  Positive economic profit  induces entry  lower prices  0 E. profit  Negative economic profit  induces exit  high prices  0 E. profit  0 economic profit in the long run Price and Output in Monopolistic
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