CHAPTER+17-SSJJ

=MONOPOLISTIC COMPETITION = media type="youtube" key="k9tMYzemuDU" height="344" width="425" - this type of market is a combination between a monopoly and a competitive market - very similar to oliogopoly, but it resembles perfect competition more
 * monopolistic competition: ** a market structure that includes many sellers, similar products, and free entry

=COMPETITION WITH DIFFERENTIATED PRODUCTS=

The Monopolistically Competitive Firm in the Short Run
 here output increases as well as ATC  case wher here output increases here output increases as well as ATC  case wher here output increases here output increases as well as ATC  case wher here output increases here output increases as well as ATC  case wher here output increases here output increases as well as ATC <span style="color: rgb(4, 143, 33);"> <span style="color: rgb(255, 255, 255);"> - because the products that are sold differ, the demand curve is downward sloping - the quantity where MR (marginal Revenue) equals MC (marginal cost) is the PROFIT MAXIMIZATION point - this market chooses its quantity and price just like a MONOPOLY would - differing locations of MC, MR, ATC, DEMAND decide whether there will be profit or loss in short term

The Long-Run Equilibrium
- the above graph is impossible to happen in long run due to free entry - thus, monopolistically competitive market likes to have 'zero-profit' in order to stop the instability and movements of money due to free entry and exit - this certain characteristic is just like it is in perfect competition - by eliminating profit and keeping the cost low, the revenue will increase - the above diminishes incentives to join or exit the market as well as keep the firms in the market satisfied

Monopolistic vs. Perfect Competition
- the major difference between these two markets: EXCESS CAPACITY & MARKUP<span style="color: rgb(33, 54, 222);"> <span style="color: rgb(255, 255, 255);">reases <span style="color: rgb(255, 255, 255);">here output increases as well as ATC <span style="color: rgb(4, 143, 33);"> case wher <span style="color: rgb(255, 255, 255);">here output increas <span style="color: rgb(255, 255, 255);">reases <span style="color: rgb(255, 255, 255);">here output increases as well as ATC <span style="color: rgb(4, 143, 33);"> case wher <span style="color: rgb(255, 255, 255);"> <span style="color: rgb(33, 54, 222);"> **EXCESS CAPACITY** - under monopolistic competition, firms produce on downward sloping portion of ATC curve whereas perfectly competitive markets produce at the minimum point of ATC - excess capacity 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 <span style="color: rgb(33, 54, 222);"> **MARKUP OVER MARGINAL COST** - for monopolistically competitive firm, price exceeds MC because the firm always has some market power to control - the concept of zero profit can be seen on the perfectly competitive graph - markup measures the difference in price between "price" and marginal cost

Monopolistic Competition and the Welfare of Society
- the cause of inefficiency is the markup of price over MC - regulation is another factor - 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

=ADVERTISING= media type="youtube" key="AEvhO9d-IvM" height="344" width="425"

The Debate over Advertising
<span style="color: rgb(33, 54, 222);">**THE CRITIQUE OF ADVERTISING** - some critiques say that advertising is equal to manipulating people's tastes; that it's //more psychological than informational// - it often convince consumers that products are more different than they truly are when consumers are put into situations to choose between two equal or similar products - with less elastic demand curve, each firm changes a larger markup over MC <span style="color: rgb(33, 54, 222);">**THE DEFENSE OF ADVERTISING** - advertising develops competition - the more competition there is, the more incentives are brought to make cheaper and better quality products - which results overall consumer happiness

Brand Names
- economists defend that brand names is a useful way for consumers to be guaranteed with high quality goods - it stirs up incentives to maintain certain quality for more persuasion for more customers to purchase <span style="color: rgb(33, 54, 222);">

QUESTIONS
1. What are the benefits and disadvantages of advertising goods? <span style="color: rgb(0, 0, 0);">The benefits that the firms gain are the more demand required by customers and more revenue due to that cause. Disadvantages include misleading factors and potential complaints from the customers due to that cause. Overall, firms gain more benefits in increasing production, gaining more profit in long term.

2. Why could there be a deadweight loss even in monopolistic competition? The same rule applies to monopolistic competition just like it does in monopolies. The difference between the efficient scale and the maximizing profit point create the deaeweight loss. The money is paid, yet no one puts it into a good and effective use. Sellers will not stop selling at the profit-maximizing point, because the more the profit from reduced total cost, means more money. Regulators want to convince the sellers to sell at the most efficient point in order to balance out the quantity being sold to profit earned.

<span style="color: rgb(33, 54, 222);"> CITATION http://wps.prenhall.com/wps/media/objects/988/1012152/chapter13/13.3.gif http://www.auhy69.dsl.pipex.com/images/dd202/b2c.jpg [|http://spot.colorado.edu/~kaplan/econ2010/section9/gifs/fig912.gif]