Chapter+17+MONOPOLISTIC+COMPETITION+Erica+Lindsay

=MONOPOLISTIC COMPETITION =


> >  __NOW you know why Monopolistic Competition is called Monopolistic Competition. It has both qualities of monopoly AND perfect competition.__
 * 1) Many sellers (Notice how this is similar to P-Competitive Market's characteristics! Much easier to memorize!! )
 * 1) Many buyers ( " " )
 * 1) __Different quality__ -> It is similar to monopoly because products have different quality (FIRM IS THE PRICE SETTER)
 * 2) Free Enter/Exit -> It is similar to perfect Competition: LONG RUN "P=ATC"

COMPETITION WITH DIFFERENTIATED PRODUCTS
Monopolistic competitors maximize profit by producing Q where MR=MC like Monopolists. JUST like monopoly, MR is below Demand curve to increase the Q sold. This graph makes losses because Price is less than ATC at this product (remember the 1line equation P1Just like monopoly, price exceeds MC. It is because profit maximization requres MR=MC and the downward sloping demand curve makes MRJust like perfect competition, P=ATC because of Free ENTER/EXIT.

<span style="font-size: 120%; font-family: 'Comic Sans MS',cursive; color: rgb(220, 71, 245);">MONOPOLISTIC VS PERFECT COMPETITION <span style="font-family: Georgia,serif;">There are TWO differences between Monopoly and Perfect Competition
 * 1) <span style="font-family: Georgia,serif;">Excess Capacity
 * 2) <span style="font-family: Georgia,serif;">Markup over MC

=<span style="font-family: 'Times New Roman',Times,serif;">**EXCESS CAPACITY** = =<span style="font-family: 'Times New Roman',Times,serif;"> = <span style="font-family: 'Times New Roman',Times,serif;">In the long run Perfectly competitive firms produce at the efficient scale (Q that minimizes average total cost) Monopolistically competitive firms produce below this level.

Monopolistically competitive firms can increase the Q it produces and lower the average TC of production.

=<span style="font-family: 'Times New Roman',Times,serif;">**MARKUP OVER MARGINAL COST** = =<span style="font-family: 'Times New Roman',Times,serif;"> = <span style="font-family: 'Times New Roman',Times,serif;">Perfectly competitive firms' P=MC, therefore, the profit from an extra unit sold is 0. Monopolistically competitive firms' have P>MC, extra unit sold means MORE profit.

<span style="font-size: 200%; font-family: Impact,Charcoal,sans-serif; background-color: rgb(0, 116, 255);"> <span style="background-color: rgb(255, 255, 255);"><span style="color: rgb(61, 127, 255);">ADVERTISING

<span style="color: rgb(13, 2, 2);">I <span style="font-family: Georgia,serif; color: rgb(55, 0, 255);"><span style="color: rgb(13, 2, 2);">s advertising good or bad? DEBATE! 1. Pro: Ads are good (Frederic Hayek) <span style="font-family: Georgia,serif; color: rgb(255, 0, 0);"> 2. Con: Ads are bad (John Kenneth Galbraith) <span style="font-family: Georgia,serif;"> Firms often use famous celebrity OR brand name to increase profit. -> More credibility when celebrities and brand names are reliable and famous.
 * 1) <span style="font-family: Georgia,serif;">Fosters competition (can take advantage of price differences)
 * 2) <span style="font-family: Georgia,serif;">Provides info to the customers
 * 1) <span style="font-family: Georgia,serif;">Manipulates tastes
 * 2) <span style="font-family: Georgia,serif;">Impedes competition (More different than they truly are)

media type="youtube" key="xgO-u83Os_I" height="344" width="425" VS McDonalds? Or Hamburger with no name?

<span style="color: rgb(255, 0, 107);">It would help you a lot!


QUICK QUIZ

1.Why are Ads good? 2.Why are Ads bad?

Answers

1. it fosters competition, provides info 2. impedes competition, manipulates taste.