Create an account
- 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
- 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
- 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
- exist where a small number of firms are producing virtually identical products
- 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
each oligopolistic firm must consider the reactions of it's rivals when it determines it's price policy
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
Please allow access to your computer’s microphone to use Voice Recording.
Having trouble? Click here for help.
We can’t access your microphone!
Click the icon above to update your browser permissions and try again
Reload the page to try again!Reload
Press Cmd-0 to reset your zoom
Press Ctrl-0 to reset your zoom
It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.
Please upgrade Flash or install Chrome
to use Voice Recording.
For more help, see our troubleshooting page.
Your microphone is muted
For help fixing this issue, see this FAQ.
Star this term
You can study starred terms together