The quantity produced by the first firm goes down.
The original firm produced 300 monopolists, but now only 200.
Entry shrinks the firm's profit rectangle because it is squeezed from three directions.
The price goes down at the top of the rectangle.
The average cost increases at the bottom of the rectangle.
The quantity is decreasing so the right side of the rectangle is moving to the left.
The cost curves for the second firm will be the same as the cost curves for the first firm if the second firm has access to the same production technology.
The demand curve for the second firm will be similar to the demand curve for the first firm.
Each firm makes 200 toothbrushes and sells them for an average price of $1 per toothbrush.
Imagine if you had enough money to start your own car-stereo business.
If the existing monopo list sells 10 stereos per day at a price of $230 and an average cost of $200 per stereo, for a profit of $30 per stereo, it would be a success.
If you sell fewer than 10 stereos, your average price will be greater than $200 because you will spread your fixed costs over fewer units.
The entry squeezes profit per unit from both sides.
If the market price drops to $215 and the average cost increases to $205 your profit per stereo will be $10 less than the monopolist's initial profit of $30 per stereo.
The government's entry restrictions on the truck ing industry were eliminated by the Motor Carrier Act of 1980.
New firms entered the market, and freight prices went down.
The market value of a firm's trucking license shows how much profit the firm can make in the market.
Consumer surplus increases in this case because the service improvement is larger than the price hike.
The entry of a satel ite firm increases the monthly consumer surplus by 32 percent.
The exercises 1.6 and 1.8 are related.
The effect of satellite entry on cable consumers is based on Chenghuan Chu.
Empirical studies show that entry lowers market prices and profits.
Consumers pay less for goods and firms make less money.
A market with only two tire stores had a price of $55 per tire, compared to a price of $53 in a market with three stores, $51 with four stores, and $50 with five stores.
We've seen that the entry of a firm in a profitable market decreases competition.
A small firm can produce the same product at the same cost as a large firm because of the small economies of scale.
A small donut shop can produce donuts and coffee at the same price as a large shop.
The market can support many firms because they can cover their costs.
Firms use a process to distinguish their products from those of their competitors.
For example, toothpastes have different flavors and their ability to clean teeth.
Some products are differentiated by the services that come with them.
Some stores provide helpful salespeople, while others require consumers to make their own decisions.
Some pizza places offer home delivery.
Some products are different depending on where they are sold.
There are no patents or regulations that could prevent firms from entering the market.
Each firm is the sole seller of a narrowly defined good.
Each firm in the toothbrush market has a unique design for its toothbrush, so each is a monopolist in the narrowly defined market for that design.
There is a petition for consumers because the products from different firms are close replacements.
Consumers will switch to the similar toothbrushes produced by other firms when a toothbrush maker increases its price.
Consumers can easily switch to another firm selling a similar product if the price of the product increases.
The toothbrush example will be used to show the features of monopolistic competi tion.
The bristle design, handle size and shape, and color of the toothbrushes are some of the things that differentiate them.
After a second firm enters the toothbrush market, both firms make a profit.
The demand curve for each firm will be shifted further to the left by the entry of a third firm.
A leftward shift of a firm's demand curve decreases the market price, decreases the quantity produced per firm, and increases the average cost per toothbrush.
A fourth firm will enter if all three firms earn positive profit after the third firm enters the market.
Firms will enter the toothbrush market until they make zero economic profit.
There are six firms in the toothbrush market.
The typical firm makes zero economic profit because the price equals the average cost.
Each firm's revenue is enough to cover its costs, but not enough to cause additional firms to enter the market.
Each firm makes enough money to stay in business.
Firms enter the market until economic profit is zero.
The demand curve is shifted to the left by entry.
We started with a monopoly that had a price of $2.00 and 300 toothbrushes.
Market entry decreased the price from $2.00 to $1.40 and increased the total quantity demanded from 300 to 480, consistent with the law of demand.
In some markets, it's simply a matter of location.
Gas stations, music stores, bookstores, grocery stores, movie theaters, and ice cream parlors are some examples.
Many firms sell the same product at different locations.
Each of the bookstores in your city sells the same book at the same price.
If a store across town offers lower prices, you might purchase your books there instead of at the most convenient store.
Each store has a monopoly in its neighborhood, but it competes with bookstores in the rest of the city.
There is a long-run equilibrium in the market for books.
New bookstores will enter the market if each store makes zero economic profit.
bookstores and other retailers differentiate their products by selling them at different locations.
The average store makes zero economic profit because the price is equal to the average cost.
Each store's revenue is enough to cover its costs, but not enough to cause other stores to enter the market.
The store makes enough money to stay open.
You can build your hotelier skills with training programs.
The competition for customers is likely to be keen because the barriers to entering the industry are relatively low.
In a monopolistically competitive motel market, you are likely to make zero economic profit, with total revenue equal to total cost.
One way to enter a competitive market is to invest in the business.
There are related to exercises 2.4 and 2.5.
Accor, the owner of the Motel 6 brand, will give you a franchise fee of $35,000 if you want to get into the economy motel market.
We've seen that market entry leads to lower prices and a larger quantity in the competition.
Entry increases the average cost of production and decreases the output per firm.
If a single toothbrush firm provided a single type of toothbrush, the average cost of production would be lower.
Some trade-offs are associated with monopolistic competition.
The cost of production is higher than the minimum, but there is more variety.
Consumers can choose from a wide variety of designs in a market with many toothbrush firms, so the higher average cost is at least partly offset by greater product variety.
The typical large city has dozens of Italian restaurants, each of which has a different menu and prepares its food in different ways.
There is a wide variety of menu and preparation techniques at restaurants.
Consumers would get less variety if a city had a single Italian restaurant.
According to their style, shoes are differentiated.
Consumers would not be able to match their shoe preferences with suitable shoes if we wore the same type of shoes.
The average cost of cloth ing would be lower if we all wore uniforms.
The average cost of production is higher when firms sell the same product at different locations.
Consumers travel shorter distances to get the product when there are many firms.
Higher production costs are partially offset by lower travel costs.
Consumers would spend more time traveling to get the books if there was only one bookstore in a large metropolitan area.
monopolistic competition is different from perfect competition because of product differentiation.
monopolistically competitive firms produce differentiated products.
Each firm has a demand curve.
The equilibrium is shown in Panel B.
The demand curve is negatively sloped because the firm has a differentiated product.
The zero-profit condition will be satisfied along the negatively sloped portion of the average-cost curve.
According to the model of perfect competition, an increase in demand will lead to higher prices.
Bars are subject to competition.
Each bar has a monopoly within its neighborhood, but faces competition from other bars outside.
The higher the demand for food and drink, the more incentive a consumer has to look for alternatives.
If you expect to purchase large quantities of bar food and drink, the savings achieved by finding a lower price at an alternative bar will be relatively large.
When individual demand increases, each bar faces a more elastic demand for its products.
The bar's rational response to more elastic demand is to decrease its price.
The demand curve facing each bar becomes flatter and will be related to the average-cost curve at a larger quantity and a lower price.
Exercise 3.6 is related to it.
A monopolistically competitive firm produces less output than a perfectly competitive firm.
Imagine that product differentiation decreases because of the difference between the two market structures.
The distinguishing features of toothbrushes don't matter if consumers decide that they don't.
The demand for a particular firm's product will become elastic as a result of the products of competing firms becoming better substitute.
As the firm's demand curve becomes flatter and more competitive, we will get closer to where the average cost reaches its minimum.
Product differentiation is a key feature of monopolistic competition.
Advertisers can inform consumers about prices.
The number of consumers who accepted a particular loan offer was higher for offer letters with low interest rates.
A 10% decrease in the interest rate increased the uptake rate by 3.4%.
When the offer letter included a picture of a woman rather than a picture of a man, the rate of men taking the offer was much higher.
Replacing a male model with a female model would cut the interest rate by 25 percent.
The gender of the model did not affect the rate of women consumers taking up their offer.
There are two exercises related to this.
There are some advertisements that don't give real information about a product.
You've seen the advertisements featuring beer drinkers frolicking on the beach with attractive people, cigarette smokers riding horseback, drivers of sports cars impressing classmates at high school reunions, and sports-drink consumers performing amazing athletic feats.
The advertisements are designed to promote an image of a product, not give information about the product's features.
Consumers may be helped by an advertisement that doesn't give product information.
Firms spend millions of dollars to get celebrities to endorse their products.
When a famous athlete or actor appears in an advertisement for a product, everyone knows he or she is doing the advertisement for money.
These advertisements increase sales.
By paying millions of dollars to run an advertisement featuring a celebrity, a firm sends a signal to consumers that the advertised product is appealing and likely to be popular.
Consider a firm that develops a new energy bar and picks a celebrity to endorse it.
A celebrity is trying to get people to try a product for the first time.
The taste and nutrition of the energy bar will be used by a consumer to make repeat purchases.
10 million people would try the energy bar if an advertisement cost $10 million.
Half the consumers who try energy bar A will become repeat consumers, as shown in the first row of Table 26.1.
If the firm makes a profit of $4 on each repeat customer, the firm's profit of $20 million will be more than the cost of the advertisement, so the firm will run the advertisement.
There is an advertisement for energy bar B in the second row of Table 26.1 Only 1 in 10 people who try energy bar B will become a repeat customer, so the firm's profit is only $4 million.
The firm won't advertise the less appealing product because it's not enough to cover the $10 million cost.
Celebrity endorsements for the two products are equally effective in getting people to try the products, but what matters is repeat customers.
It's not worth paying for an advertisement because the less appealing product gets fewer repeat customers.
Celebrity endorsements and expensive advertising send a signal to consumers that the producer expects a lot of repeat customers.
Firms have an incentive to spend money on advertising if their research shows that the product will be popular.
The signal tells consumers which products will have the most appeal.
The entry of a firm into a market decreases the market price, decreases output per firm, and increases the average cost of production.
All the problems are assignable in MyLab Economics.
Explain the effects of market entry.
Firms that sell products are the initial ones.
At a firm's current level of out, she charges a price of $9 per book, has an average cost put, and marginal revenue exceeds the marginal cost.
$4, and sells 1,001 books a year.
The firm's output and license will be auctioned by the city.
The marginal principle refers to the level of an activity as long as its per firm takes on only integer values.
The entry of a second firm into a two-firm market can be arrows up or down.
Imagine that the price of trucking services in the 1980s was the worst that could have happened with a two-firm market.
The profits of trucking firms.
Consider the quality of service versus the cable company.
The profit-maximizing effect of satellite TV entering the market is shown in a graph.
Will you restrict the number of pizzerias to one if your fixed cost doubles?
A city that initially reaches the horizontal portion of its long-run average issues five licenses to pet groomers and does not allow cost curve at an output of about 1,000 pizzas per day.
The entry restrictions are eliminated after an Suppose.
The equilibrium number of pizzerias is determined by the city licensing authority.
Beware of the decision to allow the licenses to be bought and sold on TEC.
No one was willing to give oil changes in your city.
Each firm pays a positive amount for a pet-grooming license.
The market price and quantity per firm are monopolistically competitive.
There are conditions for equilibrium in competition.
A business license allows a firm to operate their business in a competitive market.
Only one license is needed to open a Motel 6.
The trade-off is that more stores enter the market.
A number of firms leads to higher but greater expert in the book market.
The market for ice-cream has a demand curve.
In the application on consumer prices when demand is high, the results are from rel loans in South Africa.
The blue uniform is worn by all citizens.
People could choose among five uniform among male consumers.
If the firm was required to wear blue, it would be better to switch to colors.
The benefits of requiring uni rate will be increased by men.
Consider a firm that hires a celebrity to promote its products.
Discuss the role of advertising in competition.
A profit of $2 per book sold is earned by advertising for eyeglasses.
The price of eyeglasses would go down if an ad cost $320,000 and 100,000 books were promoted.
If there are repeat customers, the profit from repeat cus tomers will equal the cost of the advertisement.
The experiment shows the implications of entry and how consumers shop around for prices and profits.
Students chase lawn care at posted prices.
Each trading period lasts several minutes and each firm decides how much to charge for cutting lawns.
A consumer's score in a trading period is related to the amount that the consumer is willing to send by one to three students.
The firms pay for lawn care in two different ways.
Each firm can cut up to two lawns.
A firm's score is its total revenue minus its total cost, which is the fixed cost.
Each potential con variable cost is equal to $3 per lawn times the number of sumer willing to pay a different amount to have his or lawns cut.
The experiment has two stages.
Each potential firm makes a decision in the first stage.
Please visit the list of potential firms, one at a time, and give each firm the option of entering the market.
The entry is public knowledge.
The firm pays a fixed cost when it enters the mar ket.