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Micro Chapter 12

TermDefinition
Monopolistic competition is characterized by: A relatively large number of sellers, Product differentiation, Easy entry and exit
Monopolistic Competition is: mostly competition, not as much monopoly Ex: restaurants, clothing stores
Examples of Differentiation: service, location, branding/packaging, advertising
Nonprice competition: reduces competition and gives firms greater pricing power Ex: advertising/commercials
Monopolistically Competitive Industries are measured using the 4-firm concentration ratio (CR), which shows the percentage of sales by the 4 largest firms
4-firm concentration ratio = add the 4 largest outputs = %
Price & Output in Monop Comp (short run and long run) Demand is highly elastic Short run: Produce where MR=MC Long run: entry and exit
Monopolistic Competition and Efficiency Inefficient: Productive inefficiency: P > min ATC Allocative inefficiency: P > MC Excess capacity
The firm constantly manages price, product, and advertising which leads to: -Better product differentiation -Better advertising
The consumer benefits by a greater array of choices and better products like: -Types and styles -Brands and quality
A result of under 40% from the 4-firm concentration ratio means that it is monopolistically competitive
Significant barriers to entry: none
Created by: Phillies55
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