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Principles of Microeconomics
Chapter 13: Monopolistic Competition and Oligopoly
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Monopolistic Competition: Characteristics
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Dierentiated products
Firms produce products with slightly dierent physical characteristics.
Product dierentiation may be created through the use of advertising,
brand-naming, packaging and celebrity connections.
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Monopolistic Competition
Degree of Industry Concentration
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
The degree of concentration is the extent to which the largest rms
account for the bulk of the industrys output.
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
The degree of concentration is the extent to which the largest rms
account for the bulk of the industrys output.
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
The degree of concentration is the extent to which the largest rms
account for the bulk of the industrys output.
100
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
The degree of concentration is the extent to which the largest rms
account for the bulk of the industrys output.
100
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Monopolistic Competition
Degree of Industry Concentration
Economist measure the degree of industry of concentration to identify
monopolistically competitive versus oligopolistic industries.
The degree of concentration is the extent to which the largest rms
account for the bulk of the industrys output.
100
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Monopolistic Competition
Degree of Industry Concentration (contd)
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
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Monopolistic Competition
Degree of Industry Concentration (contd)
The Herndahl index is
H = S12 + S22 +
+ Sn2 ,
Problem
Suppose that the city of Anderson has 20 pizzerias. Their market shares in
percentage terms are as follows: 13%, 11%, 8%, 7%, 6%, 6%, 5%, 5%,
5%, 4%, 4%, 4%, 4%, 3%, 3%, 3%, 3%, 2%, 2%, and 2%. What is the
4CR? It the pizza industry in Anderson monopolistically competitive?
What is the Herndahl Index?
Shin (FSB, Anderson Univ.)
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Monopolistic Competition
Degree of Industry Concentration (contd)
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
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Monopolistic Competition
Prot Maximization in the Short-Run (contd)
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Monopolistic Competition
Prot Maximization in the Short-Run (contd)
Consider two dierent rms in a monopolistically competitive industry.
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Monopolistic Competition
Prot Maximization in the Short-Run (contd)
Consider two dierent rms in a monopolistically competitive industry.
Each rm determines its optimal output and price so as to maximize its
prot, given ATC.
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Monopolistic Competition
Prot Maximization in the Short-Run (contd)
Consider two dierent rms in a monopolistically competitive industry.
Each rm determines its optimal output and price so as to maximize its
prot, given ATC.
Then, whether it makes a positive or negative prot depends on the
ATC.
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Monopolistic Competition
Prot Maximization in the Short-Run (contd)
Consider two dierent rms in a monopolistically competitive industry.
Each rm determines its optimal output and price so as to maximize its
prot, given ATC.
Then, whether it makes a positive or negative prot depends on the
ATC.
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Monopolistic Competition
Prot Maximization in the Long-Run
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Monopolistic Competition
Prot Maximization in the Long-Run
In the long-run, some rms suering their short-run negative prots will
exit from the industry.
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Monopolistic Competition
Prot Maximization in the Long-Run
In the long-run, some rms suering their short-run negative prots will
exit from the industry.
In the long-run, new rms will easily enter into the industry to take the
existing rmspositive prots.
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Monopolistic Competition
Prot Maximization in the Long-Run
In the long-run, some rms suering their short-run negative prots will
exit from the industry.
In the long-run, new rms will easily enter into the industry to take the
existing rmspositive prots.
After such entry and exit, P = ATC at which MR = MC.
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Monopolistic Competition
Prot Maximization in the Long-Run
In the long-run, some rms suering their short-run negative prots will
exit from the industry.
In the long-run, new rms will easily enter into the industry to take the
existing rmspositive prots.
After such entry and exit, P = ATC at which MR = MC.
In the long run, therefore, each monopolistic competitors economic
prot will be zero:
mc = (Pmc
ATCmc )
Qmc = 0
because
Pmc
ATCmc = 0
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Monopolistic Competition
Prot Maximization in the Long-Run (contd)
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