bus econ 1 - module 07, monopolistic competition

a market structure in which many companies sell products that are similar but not identical

in the ____________, there are positive economic profits

in the long-run, profit comes to ____________

price > marginal cost

price = marginal cost

positive economic profit for the firm and a deadweight loss for society

in the long-run, entry and exit drive economic profit to zero (p = atc)

a market structure that fails to meet the conditions of perfect competition

a market structure in which only a few sellers offer similar or identical products

each firm has a monopoly over the product it makes but many other firms make similar products that compete for the same customers

monopolistic competition has the following attributes (1) many sellers; (2) product differentiation; and (3) free entry and exit

there are many firms competing for the same group of customers

each firm produces a product that is at least slightly different. thus, they face a downward sloping demand curve

firms can enter or exit the market without restriction. thus, the number of firms in the market adjusts until economic profits are driven to zero

monopolistic competition has the following attributes (1) there are only a few sellers in the market; (2) rigorous competition is less likely; and (3) strategic interaction is important

monopolistic competition has the following attributes (1) many sellers, each of which is small; (2) departs from the perfectly competitive ideal because each of the sellers offer a somewhat different product

monopolistic competitors produce in the short run at the point where ____

monopolistic competition uses its ________ _________ to find the price at which it can sell that quantity

encourages entry, and entry shifts the demand curve faced by the incumbent firms to the left

as the demand for incumbent firms' product falls, these firms experience declining profit

encourage exit, and exit shifts the demand curve of the remaining firms to the right

as the demand for the remaining firms' products rises, these firms experience rising profits

once the market reaches _______________, new firms have no incentive to enter, and existing firms have no incentive to exit

the quantity of output that minimizes average total cost

perfectly competitive firms produce at the _______________

for a perfectly competitive firm, _________

for a monopolistically competitive firm, _____________ because the firm has always some market power

when p = mc = atc

in the long-run equilibrium, monopolistic competition firms operate on the declining portion of their atc curves so mc is below atc

because of the _____________, some consumers who value the good at more than mc of production will be deterred from buying it

a perfect competitive firm has the normal deadweight loss of monopoly pricing.

new firms offer products that differ from those of the existing firms

firms post a price above marginal cost and are always eager to sell additional units

firms that sell highly _________________ consumer goods, spend between 10-20% of their revenue on advertising

firms that sell ___________ products, spend very little on advertising

firms that sell __________ products, spend nothing at all for advertising

monopolistic competition firms are price-makers

monopolistic competition faces a _________________ sloping demand curve. thus, they follow a monopolist's rule for profit-maximization

the process of entry and exit continues until he firms in the market are making exactly _______ economic profit.

once the market reaches equilibrium, new firms have no incentive to enter, and existing firms have no incentive to exit

monopolistically competitive firm, p = mc

perfectly competitive firm, p > mc because the firm always has some market power

a critique of advertising is that it manipulate people's tastes. some argue that ads are psychological rather than informational

advertising impedes __________________. ads convince customers that products are more different than they truly are.

arguments from the defense of advertising states that firms use advertising to provide information because it allows customers to make better choices

some argue that advertising fosters competition. customers can more easily take advantage of price differences. thus, each firm has less market power. it also allows new firms to enter the more market more easily.

the willingness to spend money on advertising does not signal the quality of a firm's produ

cheap advertising cannot be effective at signaling quality to consume

not all markets have two types of firms namely, (1) products with widely recognized brand; and (2) products with generic substitutes

an argument about the economics of brand names state that it causes consumers to perceive differences that do not really exist. consumers' willingness to pay more for the brand name good is a form of irrationality fostered by advertising.

brand names do not ensure that the goods are of high quality because it does not provide information about quality.