Monopolistic Competition

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  • A firm making profits in the short run will break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic p rofit . This giv es the amount of influence over the market; because of brand loyalty, it can raise its prices without losing all of its customers.
  • AR = average revenue MR = marginal revenue MC = marginal cost that crosses both lines AC = average cost -> makes profit
  • not just ANY shorts and shirts bigger logo and colorful shirts and shorts, not just black, gray and red.
  • Monopolistic Competition

    1. 1. Monopolistic Competition <ul><li>Anne-Claire Ramser </li></ul>Name: Monopolistic Competitors
    2. 2. What is a monopolistic competition? <ul><li>Common market structure </li></ul><ul><li>The products are substitutes, but are not exactly alike </li></ul><ul><ul><li>Motor vehicles for i.e. </li></ul></ul><ul><li>Many producers and consumers </li></ul><ul><li>No business has total control over the market price </li></ul>
    3. 3. The Pros and Cons <ul><li>Pros </li></ul><ul><ul><li>We are different </li></ul></ul><ul><ul><li>We have good incentives </li></ul></ul><ul><ul><li>We have a degree of market power </li></ul></ul><ul><li>Cons </li></ul><ul><li>Many competitors </li></ul><ul><li>We have to accept low profit margins </li></ul><ul><li>Easy for others to enter the market </li></ul>
    4. 4. Characteristics of Monopolistic Competition <ul><li>Almost the same as in perfect competition </li></ul><ul><ul><li>Competitive competition has diverse products </li></ul></ul><ul><li>Demand curve faces downward </li></ul><ul><ul><li>highly elastic but not flat </li></ul></ul>
    5. 5. What do we do? <ul><li>We have influence on prices within the market </li></ul><ul><li>We focus on cost efficiencies </li></ul><ul><li>Advertising </li></ul><ul><li>The importance of looking unique </li></ul><ul><li>We set the price </li></ul><ul><ul><li>As monopoly rather than an oligopoly </li></ul></ul>
    6. 6. Examples <ul><ul><li>Restaurants </li></ul></ul><ul><ul><ul><li>Wendy’s </li></ul></ul></ul><ul><ul><ul><li>Tully’s </li></ul></ul></ul><ul><ul><li>Cereal </li></ul></ul><ul><ul><li>Clothings </li></ul></ul><ul><ul><li>Food </li></ul></ul>
    7. 7. Examples
    8. 8. Monopolistic Competition
    9. 9. What we sell <ul><li>CA shorts and shirts </li></ul><ul><li>CA logo brand with COLORS </li></ul><ul><li>You are going to buy them </li></ul><ul><ul><li>Why? </li></ul></ul><ul><li>However, you may choose to select the regular CA shorts and shirts </li></ul>
    10. 10. Summary <ul><li>Easy to enter the market </li></ul><ul><li>Lots of competition </li></ul><ul><li>The demand is highly elastic </li></ul><ul><li>We have some degree of market power </li></ul>

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