Lesson 15

the sole seller of its product and if its product does not have any close substitutes. A monopolistic firm is a price maker, decides which price to chare

MR = MC, demand curve

concentration ratio; The concentration ratio measures the percentage of total output in the market supplied by the four largest firms. It provides a measure of the level of competition in an industry.

perfect competition; Perfect competition is the only market structure of this group that maximizes profits when price equals marginal cost. Monopolistic competition maximizes profits similar to a monopolist by equating marginal revenue and marginal cost.

monopolistic competition, oligopoly; Monopolistic competition is a market structure with many firms selling products that are similar but not identical, and oligopoly is a market structure with only a few firms who offer similar or identical products. Competitive markets have many firms selling identical products.

downward sloping demand curve; A firm in a monopolistically competitive market behaves similarly to a monopoly because the monopolistically competitive firm sells a differentiated product. As a result, the firm observes a down-ward sloping demand curve

The content of the advertisement is not relevant to consumers; A common theory about advertising is that it signals the quality of the good. As a result, the content in the actual advertisement is not relevant since spending indicates the quality is good.

The firm creates the same deadweight loss as a monopoly; A monopolistically competitive firm maximizes profits the same as a monopolist by equating marginal revenue with marginal cost. As a result, a monopolistically competitive firm creates the same deadweight loss and market inefficiency as a monopoly.

monopolistic competition and oligopoly

marginal revenue is equal to marginal cost; A monopolistically competitive firm maximizes profits when marginal revenue is equal to marginal cost. A monopolistically competitive firm observes a downward-sloping demand curve because products are differentiated and maximizes profits like a monopolist.

Economic profits for a monopolist can be positive, while economic profits for a monopolistically competitive firm are zero in the long run

monopoly and monopolistic competition

firms produce a differentiated product; Monopolistically competitive firms observe a downward-sloping demand curve because firms have differentiated products. In this respect, monopolistically competitive firms behave like a monopoly.

imperfectly competitive

The firm earns zero economic profits and creates a deadweight loss; A monopolistically competitive firm in the long run will earn zero economic profits and create a deadweight loss. This is a result of the firm operating where price is greater than marginal cost but equal to average total cost.

monopolistic competition generates a deadweight loss while perfect competition does not; A difference between perfect competition and monopolistic competition is that monopolistic competition generates a deadweight loss while perfect competition does not. The monopolistically competitive firm generates a similar deadweight loss that results with a monopoly from price being above marginal cost.

where average total cost is decreasing in the long run; A monopolistically competitive firm maximizes profits by equating marginal revenue and marginal cost. At this quantity, price will be equal to average total cost and economic profits will be zero. This will occur where average total cost is decreasing since price is above marginal cost but equal to average total cost.