Presentation on theme: "This industry is in part similar to monopoly: Product differentiation Some control over P, so D slopes slightly. Prices Cluster Not an “industry,” a."— Presentation transcript:
This industry is in part similar to monopoly: Product differentiation Some control over P, so D slopes slightly. Prices Cluster Not an “industry,” a “product group.” with 10 or 20 sellers. P1P1 P2P2 P3P3 P4P4
. Examples are omnipresent: 1.Relatively inexpensive retail products a. Soaps, breakfast cereals, toiletries. b. Gasoline service stations
. Examples are omnipresent: 2. Also in the Service Industries a. Barbers, b. Morticians c. Accountants, d. Lawyers, etc.
The industry is in part similar to competition: 1. ease of entry 2.costs of production (increasing--,decreasing--, and constant-cost “industries”)
With entry, costs... Rise--most likely? Stay the same Fall--least likely In the short run, entry is not possible. The industry is just like a monopoly--almost.
In the long run, if entry is blocked, we may have... the opportunity to maintain positive economic profits. The short run looks just like the long run. AC MC AR MR This is a short-run, positive Net revenues equilibrium.
In the long run, we may have Free Entry, which has this appearance. Why does entry squeeze out all economic (or pure) profit? AC MC AR MR
Entry pushes the firm’s demand curve downward S1S1 S4S4 PP FirmIndustry D D1D1 D4D4 Entry In monopolistic competition: In pure competition:
1. Costs rise to meet falling D 3. D overtakes falling costs Likewise, entry affects costs: 2. D falls to meet constant costs D2D2 AC 2 AC 1 AC 2 D1D1 AC 1 D1D1 D2D2 D1D1 AC k D2D2
n 1. P slightly higher, Q slightly less. n 2. Some inefficiency. Firms won’t build optimal scale of plant. Compared to pure competition:
n 3. No rivalries. No retaliation for business policy change. n Wide range of product types & variety. n Advertising a waste? Compared to pure competition:
Can a downward sloping line be tangent to a horizontal (pure competition D) one? LAC SAC o SAC o =optimal scaleD pc =P pc Efficiency :
Can a downward sloping line be tangent to a horizontal (pure competition D) one? Efficiency : LAC SAC mc SAC o D mc