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13 terms

UPG ECON0100 - CH11

Monopolistic Competition
- many firms creating differentiated products - characterized by a large number of firms and low entry barriers - entry to the industry is more difficult than under pure competition, but not nearly as difficult as under pure monopoly - it's model assumes that firms will engage in non-price competition
Non-price Competition
- refers to advertising product promotion and changes in the real or perceived characteristics of a product
Monopolistic Competitive Firms
- have a highly elastic demand curve - may realize either profits or losses in the short run, but realize normal profits in the long run - in the short run, profit maximizing firms sets it's price above marginal cost - in the long run, a profit maximizing firm sets it's price above marginal cost and will be equal to average total cost (ATC)
In a Monopolistic Competitive Market
- new firms will enter industry until economic profits are zero - industries are inefficient because they are over populated with firms whose plants are under utilized -- the economic inefficiencies may be offset by the fact that consumers have a number of variations of the product from which to choose
Excess Capacity
- refers to the amount by which actual production falls short of the minimum ATC output Oligopoly = - indicates a few firms either differentiated or homogenous products - industries are characterized as a few dominate firms and substantial entry barriers - difficult to analyze primarily because the price and output decisions for any one firm depend on the reactions of it's rivals
Homogeneous Oligopoly
- exist where a small number of firms are producing virtually identical products
Examples of Homogeneous Oligopoly
the copper, aluminum, cement, and industrial alcohol industries
Differentiated Oligopoly
- exist where a small number of firms are producing goods that differ in terms of quality and design Examples of Differentiated Oligopoly = - automobile, household appliance, and automobile tire industries
Mutual Interdependence
each oligopolistic firm must consider the reactions of it's rivals when it determines it's price policy
Inter-industry Competition
in some markets the producers of a particular product might face competition from products produced by other industries
- The likelihood of being successful is greater when cost and demand curves of various participants are very similar - Is difficult to maintain in the long run because individual members may find it profitable to cheat on agreements - in the US, are in violation of the antitrust laws
Price War
a breakdown in price leadership leading to a successive round of price cuts
- can enhance economic efficiency when it expands sells such that firms experience substantial economies of scale - can impede economic efficiency when it increases entry barriers