Chaper+17+-+Micro

=**Chapter 17 - Monopolistic Competition**=

A market structure in which many firms sell products that are similar but not identical Much like an oligopoly, but resembles a competitive market more
 * Many sellers
 * Product differentiation
 * Free entry

Profit Maximizing point: MR = MC**Long run**** The market is a zero profiting because of free entry and exit **
 * Competition with Differentiated Products**[[image:http://www.emh.co.kr/images/monopolistic_competition1.gif]]
 * Short run**
 * Price exceeds marginal cost
 * price equals average total cost

Excess Capacity: Markup over Marginal Cost:
 * Monopolistic versus Perfect Competition**
 * monopolistically competitive firms produce on downward sloping portion of ATC curve while perfectly competitive markets produce at the minimum point of ATC
 * applies to monopolistically competitive markets
 * increasing the quantity produces and lowers the average cost of total production
 * it measures the quantity difference between quantity produced to the efficient scale
 * price exceeds MC because the firm always has some market power to control
 * markup measures the difference in price between "price" and marginal cost

__Product-Variety Externality__ : through enough consumer surplus, entry of a new firm doesn't necessarily lead to loss __Business-Stealing Externality__ : since firms lose customers and profits from entering markets as a new competitor, its entrance affects the rest of the market in a negative way Because the products are not identical, firms advertise and try to persuade you to buy their products __Debate over Advertising__ ://Critiques:// advertisements manipulate the tastes of buyers//Defense:// provides information to the buyers about the good
 * Monopolistic Competition and the Welfare of Society:**
 * the cause of inefficiency is the markup of price over MC
 * regulation is another factor
 * Advertising**


 * Summery:**
 * Monopolistic Competition is like an oligopoly but more like a competitive market
 * Profit maximizing point: MC = MR
 * ATC is the price
 * Market entry and exit is free
 * Firms use advertisements to persuade buyers to buy their good

Questions: Answers:
 * 1) What is one argument against advertising?
 * 2) What is one argument for advertising?
 * 3) What is the profit maximizing point in a monopolistic competition?
 * 1) Ads change the tastes of the buyers
 * 2) Ads give helpful information to the buyers
 * 3) When Marginal cost equals Marginal revenue