Monopolistic Competition: The Competitive Model in a More Realistic Setting

1. Monopolistic Competition:The Competitive Model in a More Realistic Setting

2. Monopolistic Competition:The Competitive Model in a More Realistic Setting Monopolistic competition A market structure in which barriers to entry are low, and many firms compete by selling similar, but not identical, products.

3. Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market 1 LEARNING OBJECTIVE 12 - 1 The Downward-Sloping Demand for Caffe Lattès at a Starbucks The Demand Curve for a Monopolistically Competitive Firm

4. Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market Demand and Marginal Revenue at a Starbucks 12 – 1 Marginal Revenue for a Firm with a Downward-Sloping Demand Curve

5. Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market 12 - 3 The Demand and Marginal Revenue Curves for a Monopolistically Competitive Firm Marginal Revenue for a Firm with a Downward-Sloping Demand Curve

6. How a Monopolistically Competitive Firm Maximizes Profits in the Short Run 2 LEARNING OBJECTIVE 12 - 4 Maximizing Profit in a Monopolistically Competitive Market

7. What Happens to Profits in the Long Run? 3 LEARNING OBJECTIVE 12 - 5 How Entry of New Firms Eliminates Profits How Does Entry of New Firms Affect the Profits of Existing Firms? Don’t Confuse Zero Economic Profit with Zero Accounting Profit

8. What Happens to Profits in the Long Run? The Short Run and the Long Run For a Monopolistically Competitive Firm 12 – 2 How Does Entry of New Firms Affect the Profits of Existing Firms?

9. 12 - 2 3 LEARNING OBJECTIVE • The Short Run and the Long Run for the Macintosh

10. What Happens to Profits in the Long Run? Is Zero Economic Profit Inevitable in the Long Run? • A firm’s profits will be eliminated in the long run only if the firm stands still and fails to find new ways of differentiating its product or fails to find new ways of lowering the cost of producing its product.

11. Comparing Perfect Competition and Monopolistic Competition 4 LEARNING OBJECTIVE Comparing Long-Run Equilibrium under Perfect Competition and Monopolistic Competition 12 - 6

12. Comparing Perfect Competitionand Monopolistic Competition Excess Capacity under Monopolistic Competition • The profit-maximizing level of output for a monopolistically competitive firm comes at a level of output where price is greater than marginal cost and the firm is not at the minimum point of its average total cost curve. How Consumers Benefit from Monopolistic Competition Consumers benefit from being able to purchase a product that is differentiated and more closely suited to their tastes.

13. How Marketing Differentiates Products 5 LEARNING OBJECTIVE Marketing All the activities necessary for a firm to sell a product to a consumer. Brand Management Brand Management The actions of a firm intended to maintain the differentiation of a product over time.

14. What Makes a Firm Successful? 6 LEARNING OBJECTIVE 12 - 7 What Makes a Firm Successful?

15. Brand management • Marketing • Monopolistic Competition