Monopolistic Competition

1. Monopolistic Competition meaning of monopolistic competition characteristics of monopolistic competition Examples, advantages & disadvantages Graphing We Are..

2. What is MC? - Many firms sell products that are similar but not identical. - Products that are differentiated from one another as good but not perfect substitutes

3. Characteristics of MC 1.Product Differentiation Goods sold are close substitutes but not perfect substitutes Goods satisfies the same basic wants or need. Physical differences (size, design, color , shape) Perceived differences (packaging , brand names) Support services (presentations, ‘ gimiks ’, advertisement)

4. 2 . Many Firms Many firms in each MC product group (collection of similar products) and many firms on the sidelines prepared to enter the market. 3. Free Entry and Exit (Long run) Low start up cost, no sunk cost and no exit costs. Free to enter and exit industry. 4. Independent decision Making gives no consideration to what effect its decision may have on competitors .

5. 5. Market Power firm has control over the terms and conditions of exchange . (price) 6. Imperfect Information Buyers and sellers do not know everything, but they have relatively information alternative prices, differences, brand names etc.

6. Examples Clothing Toothpaste Restaurant Stationery Farmers Soap Chocolate

7. Advantages no significant barriers to entry. d ifferentiation creates diversity, choice and utility. Disa dvantages Unnecessary wastes (packaging, advertising)

8. Advantages & Disadvantages compared to Market #s of Produ-cers Type of Product Control over Price Conditions of entry Examples Pure Competition Large Virtually identical None Very easy Agricultural Products Monopolistic Competition Many Differentiated Limited Easy Retail trade, food, gasoline, fashion Oligopoly Few Standardized/ differentiated Limited / wide Hard Appliances, cigars, cars, computers Pure monopoly One Unique Wide Blocked Government, franchise, utilities

9. Graphing MC= Marginal cost MR= Marginal revenue ATC= Average total cost

10. MC= Marginal cost MR= Marginal revenue ATC= Average total cost

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