Chapter+17+Monopolistic+Competition+(Joon,+Scott,+and+Steven)


 * Monopolistic Competition**




 * Key Terms**


 * Monopolistic Competition**: a market structure in which many firms sell products that are similar but not identical




 * Competition with Differentiated Products**

__Short Run__

In short-run, monopolistic competition share the same concept with that of monopoly market. Thus, it maximizes its profit when MR = MC.

When P > ATC, firms gain profit When P < ATC, firms lose profit



__Long Run__

In long-run, monopolistic competition share the same concept with that of competitive market. Thus, when firms gain profit, more firms will enter. And when firms loose profit, more will exit. But when more firms enter, the demand of the market shifts left. And as more firms exit, the demand of the market shifts right. As a result, the firms will gain 0 profit in the long-run, as the demand will stay tangent to the ATC.




 * Monopolistic vs. Perfect Competition**

One of the differences between monopolistic competition and perfect competition is that perfect competition can produce at an efficient scale whereas monopolistic competition cannot. This is because of excess capacity.

Another difference is that price of monopolistic competition exceeds MC (P > MR = MC), whereas price of perfect competition do equal to MC (P = MR = MC). Thus, monopolistic will have a deadweight loss.


 * The Debate Over Advertising**

We see advertisements everywhere. Yet, such advertisements are a huge debate topic in the study of economics.

Those that are against advertisements...
 * advertisement "brainwashes" people's mind in making them buy its own product
 * it is more of a psychological effect than an informational effect
 * it makes its own product look much better than other products available, thus, decreases competition

Those that are for advertisements...
 * it provides helpful informations
 * because of its informations, it creates a better competition

Well, here's a sample of an advertisement. See which side you're towards to.

media type="youtube" key="40DykbPa4Lc" height="344" width="425"


 * Brand Names**



Coca-Cola, Pizza Hut, Burger Kings...

They are all brand names we are very familiar of. How do they affect the monopolistic competition?

Critiques may argue that brand name make people to "perceive difference". That is, people will choose to go drink Pizza Hut even if there are 50 different types of fast food pizza restaurants.

Supporters, however, may argue back saying that brand name helps those firms to provide good business.

In conclusion, monopolistic competition can be viewed similarly with both monopoly and perfect competition. Yet, monopolistic competition shares its own unique characterstics: similar yet not identical.


 * Review Questions**


 * 1) In long-run, the firms will make how much profit?
 * 2) What is one difference between monopolistic and perfect competition?
 * 3) How can advertisement be considered harmful for monopolistic competition?

Answers
 * 1) Zero
 * 2) Excess capacitiy or markup over marginal cost
 * 3) advertisement "brainwashes" people's mind in making them buy its own product, it is more of a psychological effect than an informational effect, it makes its own product look much better than other products available, thus, decreases competition

Sources

http://www.justin.tv/asandman/profile http://wps.prenhall.com/wps/media/objects/988/1012152/chapter13/13.3.gif http://monopolys.wordpress.com/2009/05/05/hello-world/ http://bcoelho2000.blogspot.com/ http://iconics.ws/wordpress/?m=200901 http://therealsouthkorea.wordpress.com/2009/01/