<MONOPOLISTIC COMPETITION>

--DEFINITION--

MONOPOLISTIC COMPETITION refers to a MARKET STRUCTURE, which EXHIBITS FEATURES of BOTH the PERFECTLY COMPETITIVE model and the MONOPOLY model. In this model, firms have some degree of PRICE SETTING ABILITY (MARKET POWER), due to PRODUCT DIFFERENTIATION, however, their demand curves are RELATIVELY ELASTIC.

--PERFECT COMP. FEATURES--

--LARGE NUMBER OF FIRMS--

Exactly like the PC model, firms in monopolistic competition have many competitors meaning their market share is rather insignificant.

--NO BARRIERS TO ENTRY--

Exactly the same feature as in the perfectly competitive model.

--MONOPOLY FEATURES--

--PRODUCT DIFFERENTIATION--

This feature of the model ALLOWS THE FIRMS TO ESTABLISH SOME DEGREE OF UNIQUENESS that gives them market power and hence a DOWNWARD SLOPING DEMAND CURVE, which is obviously LESS ELASTIC THAN IN PC yet MORE ELASTIC THAN IN A MONOPOLY, due to the large number of close substitutes that exist.

--TYPES OF PRODUCT DIFFERENTIATION--

--AFTER-SERVICES--

--LOCATION--

--PRODUCT IMAGE--

--TYPES OF COMPETITION--

--PRICE--

Price competition occurs when a FIRM LOWERS ITS PRICE to attract customers away from rival firms, thus increasing sales at the expense of other firms.

--NON-PRICE--

Non-price competition occurs when firms use METHODS OTHER THAN CHANGES IN PRICE to attract customers from rivals.

--TYPES OF NON-PRICE COMPETITION--

The most common forms of non-price competition are PRODUCT DIFFERENTIATION such as PHYSICAL & QUALITY DIFFERENCES, PACKAGING, SERVICE PROVISION, LOCATION, etc.), ADVERTISING, and BRANDING (creating brand names for products).

--SHORT RUN PROFIT DIAGRAMS--

--PROFIT MAXIMISING MONOPOLISTIC FIRM earning ECONOMIC PROFIT, NORMAL PROFIT, and incurring MINIMUM LOSSES--

--LONG RUN PROFIT DIAGRAMS--

--A MONOPOLISTIC firm with SR ECO. PROFIT & LR NORMAL PROFITS--

In monopolistic markets, due to product differentiation, each firm has its own slightly unique supply and demand curve, meaning it is not possible to create an industry demand and supply curve. Therefore, when firms are making eco. profit in the SR and other firms enter, they are not directly increasing the supply of the EXACT same good, rather a differentiated alternative, however, the result is still the same in terms of a lowered demand curve.

--A MONOPOLISTIC firm with SR LOSSES & LR NORMAL PROFITS--

--EFFICIENCY DIAGRAMS--

--MONOPOLISTIC vs PERFECT COMP.--

--MONOPOLISTIC vs MONOPOLY--

--ASSESSMENT--

--WHOLE CLASS MCQ--

--KAHOOT--

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