ECON 202 Lecture Notes - Lecture 14: Monopolistic Competition, Marginal Revenue, Demand Curve

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cerisegiraffe538

13 Jul 2015

School

Texas A&M University

Department

Economics

Course

ECON 202

Professor

Ajalavat Viriyavipart

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Econ 202: principles of microeconomics - lecture 14: monopolistic competition. Monopolistic competition: a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products. The majority of firms with which people interact are considered monopolistic competition. Examples include restaurants, movie theaters, supermarkets, and clothing stores. Demand curve and marginal revenue for monopolistic competition. Unlike the horizontal demand curve for a firm in a perfectly competitive market, the demand curve for a monopolistically competitive firm will be downward sloping. This means that a change in price can/will affect the quantity of products sold. As the price of a product increases, the quantity demanded for that product will fall. In a monopolistic competition, the marginal revenue curve is no longer the same thing as the demand curve. This is true because a firm must reduce its price in order to sell another product. Remember: marginal revenue = tr .

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

bronzecattle701

13. If a monopolistic competitor is producing an output for which marginal revenue is $40 and the marginal cost is $32, to maximize profits the firm should
A. decrease the level of output.
B. keep the level of output constant.
C. continue to make $8 per unit.
D. increase the level of output.

14. A monopolistic competitor will not make an economic profit unless
A. it engages in price discrimination.
B. its marginal revenue is greater than its marginal cost.
C. it faces an inelastic demand curve.
D. its price is greater than its average total cost.

15. The definition of monopolistic competition includes
A. few firms and ease of entry and exit.
B. few firms and barriers to entry and exit.
C. many firms and barriers to entry and exit.
D. many firms and ease of entry and exit.

16. Characteristics of monopolistic competition include all of the following except
A. significant barriers to entry.
B. a relatively large number of sellers and buyers.
C. small market share for each seller.
D. differentiated products.

olivecricket650

If I were to open a business, I would choose the monopolistic competitive market.

Under monopolistic competition, with low barriers to entry and low capital requirements, firms are free to enter into or exit from the industry at any time. In addition, in monopolistic competition, large numbers of sellers offer closely related but not homogeneous products. This is the reason why each firm has a limited share of the market and has limited control over the market price. Thus, changes in one firmâs output have only a slight impact on market price or it also means that firms in monopolistic competition are price setters rather than price takers. In the short run, firms can make excess economic profits. However, as barriers to entry are low, other firms have an incentive to enter the market, increasing the competition, until overall economic profit is zero.

In order to yield the greatest profit, a firm engaged in monopolistic competition will focus on product quality, location, service, and advertising, since the major tool of competition is product differentiation. For example, if I opened a restaurant, the restaurant would have a menu with different dishes and different prices to other restaurants nearby and the prices of the dishes also would depend on its location, the food ingredients, the food quality, and the speed of service. With the purpose of gaining profit for the restaurant, I would try to be dynamically efficient, innovative and develop new ways to attract and retain local custom as well as maintain cost efficiency, which could keep the cost below the average profit.

I need a peer reply for this discussion and it should be 250 at least

bronzefrog162

ECON 202 Lecture Notes - Lecture 14: Monopolistic Competition, Marginal Revenue, Demand Curve

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