ECN 104 Chapter Notes - Chapter 16: Average Cost, Monopolistic Competition, Imperfect Competition

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23 Jul 2016
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Chapter 16- Monopolistic Competition
Between Monopoly and Perfect Competition
-Many industries fall somewhere between the polar cases of perfect competition and
monopoly
-Economists call this imperfect competition
-One type of imperfectly competitive market is an oligopoly
Oligopoly: A market with only a few sellers, each offering a product that is similar or
identical to the products offered by other sellers
Monopolistic Competition: A market structure in which many firms sell products that
are similar but not identical
-To be more precise, monopolistic competition describes a market with the following
attributes:
Many Sellers: There are many firms competing for the same group of customers
Product Differentiation: Each firm produced a product that is at least slightly different
from those of other firms. Rather than being a price taker, each firm faces a downward-
sloping demand curve
Free Entry and Exit: Firms can enter or exit the market without restriction. The number
of firms in the market adjusts until iconic profits are driven to zero
Figure 16.1 summarizes the four types of market structure. The first question to ask
about any market is how many firms there are. If there is only one firm, the market is a
monopoly.. If there are only a few firms, the market is an oligopoly. If there are many
firms, we need to ask another question: Do the firms sell identical or differentiated
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