ECON101 Chapter Notes - Chapter 14: Monopolistic Competition, Perfect Competition, Demand Curve

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Robert Park

Document Summary

Monopolistic competition a market structure in which: a large number of firms compete, each firm produces a differentiated product, firms compete on product quality, price, and marketing, firms are free to enter and exit the industry. Large number of firms (has 3 implications for the firms in the industry) Small market share: each firm supplies a small part of the total industry output each firm has limited power to influence the price of its product price can only deviate by relatively small amount. Ignore other firms: firms must be sensitive to the average market p(cid:396)i(cid:272)e of the p(cid:396)odu(cid:272)t, (cid:271)ut the fi(cid:396)(cid:373) does(cid:374)"t pa(cid:455) atte(cid:374)tio(cid:374) to any one individual competitor. Collusion impossible: # of firms in monopolistic competition is large coordination is difficult collusion is impossible. Product differentiation practice of making a product that is slightly different from the products of competing firms. Differentiated product is a close substitute but not a perfect substitute for the products of the other firms.