Chapter 17 - Monopolistic competition
- University of Washington - Seattle Campus
- Economics 200
- Chapter 17 - Monopolistic competition
Last Modified: 2011-06-26
Related Textbooks:Study Guide for Mankiw's Principles of Microeconomics, 4th
Related Textbooks:Study Guide for Mankiw's Principles of Microeconomics, 5th
- product differentiation
- free entry
- chooses the quantity to produce where marginal revenue equals marginal cost
- chooses the price based on where MC = MR
- demand for firms' products fall -- declining profit
- some firms leave the market, driving the price back up again
- brands of cereal
- brands of peanut butter
- price = ATC because free entry/exit drives economic profit to zero
2. markup over marginal cost
- creates a desire that wouldn't exist otherwise
- impedes competition
- firms can then charge a higher markup
- tells of the existence of new products
- fosters competition -- each firm has less market power
- WTP is deceived
- provide information about quality
- give firms incentive to uphold good quality
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