1. Monopolistic Competition
Market Structure
More Competitive
Less Competitive
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

2. Perfect Competition Many buyers and sellers
Buyers and sellers are price takers
Product is homogeneous
Perfect mobility of resources
Economic agents have perfect knowledge
Example: Stock Market
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

3. Monopolistic Competition
Many sellers and buyers
Differentiated product
Perfect mobility of resources
Example: Fast-food outlets
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

4. Oligopoly Few sellers and many buyers
Product may be homogeneous or differentiated
Barriers to resource mobility
Example: Automobile manufacturers
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

5. Monopoly Single seller and many buyers
No close substitutes for product
Significant barriers to resource mobility
Control of an essential input
Patents or copyrights
Economies of scale: Natural monopoly
Government franchise: Post office
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

6. Perfect Competition: Price Determination
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

7. Perfect Competition: Short-Run Equilibrium
Firm’s Demand Curve = Market Price
= Marginal Revenue
Firm’s Supply Curve = Marginal Cost
where Marginal Cost > Average Variable Cost
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

8. Perfect Competition: Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

9. Perfect Competition: Long-Run Equilibrium
Quantity is set by the firm so that short-run:
Price = Marginal Cost = Average Total Cost
At the same quantity, long-run:
Price = Marginal Cost = Average Cost
Economic Profit = 0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

10. Perfect Competition: Long-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

11. Monopoly
Single seller that produces a product with no close substitutes
Sources of Monopoly
Control of an essential input to a product
Patents or copyrights
Economies of scale: Natural monopoly
Government franchise: Post office
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

12. Monopoly Short-Run Equilibrium
Demand curve for the firm is the market demand curve
Firm produces a quantity (Q*) where marginal revenue (MR) is equal to marginal cost (MR)
Exception: Q* = 0 if average variable cost (AVC) is above the demand curve at all levels of output
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

13. Monopoly Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

14. Monopoly Long-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

15. Social Cost of Monopoly
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

16. Monopolistic Competition
Many sellers of differentiated (similar but not identical) products
Limited monopoly power
Downward-sloping demand curve
Increase in market share by competitors causes decrease in demand for the firm’s product
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

17. Monopolistic Competition Short-Run Equilibrium
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

18. Monopolistic Competition Long-Run Equilibrium
Profit = 0
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.

19. Monopolistic Competition Long-Run Equilibrium
Cost with selling expenses
Cost without selling expenses
PowerPoint Slides by Robert F. Brooker Copyright (c) 2001 by Harcourt, Inc. All rights reserved.