Chapter 17 Flashcards
What are the characteristics of monopolistic competition?
- Many Sellers.
- Low barriers to entry (free entry and exit).
- Slight product differentiation
What does the demand curve of a monopolistic competitive market look like?
It is downward sloping and slightly elastic.
What is the definition of monopolistic competition?
A large number of firms selling similar but different products
What are some examples of monopolistic competitiors?
- Nike vs. Adidas (shoe market)
- Pepsi vs. Coke (soda market)
- McDonalds vs. Burger king. (fast food.)
What are the features by which one can differentiate monopolistic competitiors?
- Style.
- Texture
- taste.
- features.
- Location (Buying milk at the convenient store vs. grocery store.)
T/F differentiated products do not use advirtisement?
- false they do use lots of advertisement.
What is the market power?
Market power is the loyalty that is generated through advertisement and allows firms raise and maintain price above the level that would prevail under competition
what is point to which monopolistic competitively firms will produce up to?
- Up until the point where MR = MC.
What is the equation for total revenue (TR)?
TR = P x Q
What is the equation for Total Costs (TC) ?
TC = AC x Q
What is the equation for profit?
Profit = TR - TC
Describe the differences in the graphs of the Short run vs. the long run?
The long run results in normal profit as a result of the demand curve shifting back.
What is marginal revenue and costs?
MR: the change in revenue associated with producing one more unit.
MC: the costs associated with producing one more unit.
What is the point in which firms in the long run of monopolistically competitive environments produce?
These firms produce up until the point where P=AC.
does the short run or long run earn a “zero profit” ?
- long run
Zero Profit: a firm is earning the same as it would if its resources were employed in the next best alternative.
Firms in monopolistically competitive environments charge …..(above or below)….marginal costs?
Above marginal costs.
Who produces a larger quantity firms in monopolistically competitive environments or in perfectly competitive environments?
- Competitive firms produce a larger quantity.
What environment has price searchers and which environment has price takers?
- Perfectly competitive markets: price takers.
- Monopolistic competitive markets: price searchers.
What is the point up until perfectly competitive firms produce?
- up until the minimum average costs.
Describe the demand curve a perfectly competitive firm?
It is perfectly elastic.
-P = MR
Why are costs higher in monopolistically competitive environments?
- ) The greater variety of product selection.
2. ) Advertising.(be tentative with this choice.)
what does product differentiation mean literally and in more realistic terms?
Realistically: products are have differences.
Literally: companies are able to charge P > MC.
