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Chapter 13 - Monopolistic competition and oligopoly. In this chapter students will be able to: Explain how price and output are determined under monopolistic competition, describe the characteristics of oligopoly and the cournot model, compare several key noncooperative oligopoly models; including Stackelberg and the dominant firm;. | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 13: Monopolistic Competition and Oligopoly Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain how price and output are determined under monopolistic competition. Describe the characteristics of Oligopoly and the Cournot Model. Compare several key noncooperative oligopoly models, including Stackelberg and the dominant firm. Show how price and output are determined under the cooperative oligopoly model of cartels. 13.1 PRICE AND OUTPUT UNDER MONOPOLISTIC COMPETITION Explain how price and output are determined under monopolistic competition. Price and Output Under Monopolistic Competition Monopolistic competition – a market characterized by: unrestricted entry and exit a large number of independent sellers producing differentiated products Differentiated product – a product that consumers view as different from other . | MICROECONOMICS: Theory & Applications By Edgar K. Browning & Mark A. Zupan John Wiley & Sons, Inc. 12th Edition, Copyright 2015 Chapter 13: Monopolistic Competition and Oligopoly Prepared by Dr. Della Lee Sue, Marist College Learning Objectives Explain how price and output are determined under monopolistic competition. Describe the characteristics of Oligopoly and the Cournot Model. Compare several key noncooperative oligopoly models, including Stackelberg and the dominant firm. Show how price and output are determined under the cooperative oligopoly model of cartels. 13.1 PRICE AND OUTPUT UNDER MONOPOLISTIC COMPETITION Explain how price and output are determined under monopolistic competition. Price and Output Under Monopolistic Competition Monopolistic competition – a market characterized by: unrestricted entry and exit a large number of independent sellers producing differentiated products Differentiated product – a product that consumers view as different from other similar products. Determination of Market Equilibrium The demand curve facing each firm is downward-sloping but fairly elastic, reflecting a firm’s market power. Differs from a monopoly: Firm demand curve is not the market demand. Entry into the market is not restricted. Firms compete on product differentiation as well as price. Long-run equilibrium: attained as a result of firms entering (or leaving) the industry in response to profit incentives. Price > MC zero economic profit Figure 13.1 – Monopolistic Competition Monopolistic Competition and Efficiency Excess capacity – the result of firms failing to produce at lowest possible average cost The firm does not operate at the minimum point on the LR average cost curve. Total output is wrong from a social perspective due to deadweight loss Deadweight loss is analytically reduced if the interdependence between individual firms’ demand is taken into account Figure 13-2 – Alleged Deadweight Loss of Monopolistic Competition Is
