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Lecture Business economics - Lecture 11: Monopolistic competition

Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. Types of imperfectly competitive markets: Monopolistic Competition and oligopoly. Markets that have some features of competition and some features of monopoly. The following will be discussed in this chapter: Monopolistic competition, competition with differentiated products, advertising. | Review of the previous lecture A monopoly is a firm that is the sole seller in its market. It faces a downward-sloping demand curve for its product. A monopoly’s marginal revenue is always below the price of its good. Like a competitive firm, a monopoly maximizes profit by producing the quantity at which marginal cost and marginal revenue are equal. Unlike a competitive firm, its price exceeds its marginal revenue, so its price exceeds marginal cost. A monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus. Review of the previous lecture A monopoly causes deadweight losses similar to the deadweight losses caused by taxes. Policymakers can respond to the inefficiencies of monopoly behavior with antitrust laws, regulation of prices, or by turning the monopoly into a government-run enterprise. If the market failure is deemed small, policymakers may decide to do nothing at all. Monopolists can raise their profits by . | Review of the previous lecture A monopoly is a firm that is the sole seller in its market. It faces a downward-sloping demand curve for its product. A monopoly’s marginal revenue is always below the price of its good. Like a competitive firm, a monopoly maximizes profit by producing the quantity at which marginal cost and marginal revenue are equal. Unlike a competitive firm, its price exceeds its marginal revenue, so its price exceeds marginal cost. A monopolist’s profit-maximizing level of output is below the level that maximizes the sum of consumer and producer surplus. Review of the previous lecture A monopoly causes deadweight losses similar to the deadweight losses caused by taxes. Policymakers can respond to the inefficiencies of monopoly behavior with antitrust laws, regulation of prices, or by turning the monopoly into a government-run enterprise. If the market failure is deemed small, policymakers may decide to do nothing at all. Monopolists can raise their profits by charging different prices to different buyers based on their willingness to pay. Price discrimination can raise economic welfare and lessen deadweight losses. Lecture 11 Monopolistic Competition Instructor: Prof.Dr.Qaisar Abbas Course code: ECO 400 Lecture Outline Monopolistic competition Competition with differentiated products Advertising Monopolistic Competition Imperfect competition refers to those market structures that fall between perfect competition and pure monopoly. The Four Types of Market Structure Monopolistic Competition Types of Imperfectly Competitive Markets 1. Monopolistic Competition Many firms selling products that are similar but not identical. 2. Oligopoly Only a few sellers, each offering a similar or identical product to the others. Markets that have some features of competition and some features of monopoly. Attributes of Monopolistic Competition 1. Many sellers: There are many firms competing for the same group of customers. Product examples include books, CDs, .