SummaryThis chapter examined the world of imperfect competition that exists between the idealized extremes of perfect competition and monopoly. Imperfectly competitive markets exist whenever there is more than one seller in a market and at least one seller has some degree of control over price. Show
We discussed two general types of imperfectly competitive markets: monopolistic competition and oligopoly. Monopolistic competition is characterized by many firms producing similar but differentiated goods and services in a market with easy entry and exit. Oligopoly is characterized by relatively few firms producing either standardized or differentiated products. There may be substantial barriers to entry and exit. In the short run, a monopolistically competitive firm’s pricing and output decisions are the same as those of a monopoly. In the long run, economic profits will be whittled away by the entry of new firms and new products that increase the number of close substitutes. An industry dominated by a few firms is an oligopoly. Each oligopolist is aware of its interdependence with other firms in the industry and is constantly aware of the behavior of its rivals. Oligopolists engage in strategic decision making in order to determine their best output and pricing strategies as well as the best forms of nonprice competition. Advertising in imperfectly competitive markets can increase the degree of competitiveness by encouraging price competition and promoting entry. It can also decrease competition by establishing brand loyalty and thus creating barriers to entry. Where conditions permit, a firm can increase its profits by price discrimination, charging different prices to customers with different elasticities of demand. To practice price discrimination, a price-setting firm must be able to segment customers that have different elasticities of demand and must be able to prevent resale among its customers. Concept Problems
Numerical Problems
Which of the following is a difference between a purely competitive firm and a monopolistically competitive firm group of answer choices?a purely competitive firm sells a product that is identical to competitors' products, whereas monopolistically competitive firms sell slightly differentiated products.
What are the differences between a monopoly market and a monopolistically competitive market?A monopoly is the type of imperfect competition where a seller or producer captures the majority of the market share due to the lack of substitutes or competitors. A monopolistic competition is a type of imperfect competition where many sellers try to capture the market share by differentiating their products.
Which of the following is a difference between perfect competition and monopolistic competition?In perfect competition, firms produce identical goods, while in monopolistic competition, firms produce slightly different goods.
Which of the following represents a difference between a monopoly and a monopolistically competitive firm in the long run?Which of the following represents a difference between a monopoly and a monopolistically competitive firm in the long run? Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run.
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