1. Review Identify the 4 market structures.
Identify the 3 types of market.
Identify 4 types of monopoly.
Explain why D is greater than MR in monopoly.
Define price discrimination.
List characteristics of perfect competition.
List monopoly characteristics.
Examples of non-price competition.
List three economies of scales.
Name 10 types of candy.

2. Differentiated Products2

3. Monopolistic Competition

4. Perfect
Competition
Pure
Monopoly
Monopolistic
Oligopoly
Characteristics of Monopolistic Competition:
Relatively Large Number of Sellers
Differentiated Products
Some control over price
Easy Entry and Exit (Low Barriers)
A lot of non-price competition (Advertising)

5. “Monopoly” + ”Competition”
QUALITIES
Monopolistic Qualities:
Control over price of own good due to differentiated product
Demand is greater than MR
Plenty of Advertising
Not efficient
Perfect Competition:
Large number of smaller firms
Relatively easy entry and exit
Zero Economic Profit in Long-Run since firms can enter

6. Differentiated Products
Goods are NOT identical.
Firms seek to capture a piece of the market by making unique goods.
Since these products have substitutes, firms use NON-PRICE Competition.
Examples of NON-PRICE Competition
Brand Names and Packaging
Product Attributes
Service
Location
Advertising (Two Goals)
Increase Demand
Make demand more INELASTIC

7. Drawing Monopolistic Competition

8. Long – Run Monopoly Monopolistic Competition Monopolistic Competition
Quantity
Price MC
Review the monopoly making/losing money graphs.
Shaded the area of profit/loss, TR & TC.
How to get rid of the “economic profit/loss”  No economic profit  Long-Run  TR=TC
Make sure the ATC only TANGENT with demand, NOT intercept. D MR

9. In the short-run, it is the same graph as a monopoly making profit
Monopolistic Competition is made up of prices makers so MR is less than Demand
In the long-run, new firms will enter & drive DOWN DEMAND for firms already in the market.
Firms enter so demand falls until there is no economic profit
In the short-run, it is the same graph as a monopoly making profit
Price and quantity falls and TR=TC
Price MC MR D MR D
ATC
DLR
MRLR P1
PLR
Profit
TR = TC
QLR / Q1 Q
In the LONG-RUN EQUILIBRIUM
Quantity where MR=MC up to P=ATC 9

10. What happens when there is a loss?
In the long-run, firms will leave & drive UP DEMAND for firms already in the market.
What happens when there is a loss?
In the short-run, it is the same graph as a monopoly making a loss
Firms leave so demand increases until there is no economic profit
Price and quantity increase and TR=TC
Price
ATC MC
DLR
MRLR D MR D MR
PLR P1
Loss
TR = TC Q Q1
/QLR 10

11. Why does DEMAND shift? When short-run profits are made…
When short-run losses are made…
New firms enter.
New firms mean more close substitutes and less market shares for each existing firm.
Demand for each firm falls.
Firms exit.
Result is less substitutes and more market shares for remaining firms.
Demand for each firm rises.

12. Are Monopolistically Competitive Firms Efficient?
LONG-RUN EQUILIBRIUM
Are Monopolistically Competitive Firms Efficient?
Productively Efficient?
Allocatively Efficient ?
No, P ≠ Min ATC
No, P ≠ MC
This firm also has EXCESS CAPACITY
Price MC
ATC
The firm can produce at a lower cost but it holds back production to maximize profit.
PLR
QLR
/QSO/QPE
Excess Capacity MR D
Quantity 12

13. Excess Capacity
Given current resources, the firm CAN produce at the lowest costs (min ATC) but they decide not to.
The output b/w the minimum ATC & the profit maximizing.
Not the amount under-produced.

14. MONOPOLISTIC COMPETITION
Advantages of
MONOPOLISTIC COMPETITION
Large number of firms and product variation meets societies needs.
Nonprice Competition (product differentiation and advertising) may result in sustained profits for some firms.
Ex: Nike might continue to make above normal profit because they are a well known brand.

15. FOUR MARKET MODELS

16. Graphing
Draw the graph for a monopolistic competitive fast food restaurant making $400 total profit by selling 200 burgers at $4 each. Label D, MR, MC, Price, and Quantity.
Show shifts that will occur in the long-run and identify TR, TC, and profit.

17. Practice Question
Assume there is a monopolistically competitive firm in long-run equilibrium. If this firm were to realize productive efficiency, it would:
have more economic profit.
have a loss.
also achieve allocative efficiency.
be under producing.
be in long-run equilibrium.
Answer is B.
Draw a monopolistic competitive graph in the long run. *