BU111 Chapter Notes - Chapter 16: Monopolistic Competition, Imperfect Competition, Market Power
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BU111 Full Course Notes
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Many cases, industries don"t fall in perfect competition and monopoly, called imperfect competition. One type is oligopoly, market with a few sellers each offering a product that is similar or identical to products by other sellers. Concentration ratio = measure a market"s domination by a small number of firms. Monopolistic competition = many firms selling products that are similar but not identical. Many sellers: firms competing for same group of customers. Product differentiation: each firm produces product that is slightly different. Rather than being a price taker, each firm faces a downward sloping demand curve. Free entry and exit: firms can enter or exit any time. Thus number of firms in market adjusts until economic profits are driven to zero. P > atc to make a profit, monopolistic competitive firm chooses its quantity and price as monopoly does. 2 characteristics describe the log run eq in a monopolistically competitive market: as in a monopoly market, price > mc.
