Monopolistic Competitors

Chapter XI

Monopolistic Competitors

Monopolistic Competitors Defined

-A monopolistically competitive industry has many firms selling a differentiated product

monopolistic competitors do have some influences over price because their products are differentiated. But it’s very small influence. We now encounter a differentiated product for the first time

NOTE: The definition of monopolistic competition differs from that of perfect competition only in the element of a differentiated product.

The differences between the Identical and differentiated

*if the buyer doesn’t differentiate among the version of the product sold, the products are Identical.

*if he does differentiate, the product is then differentiated .

-The buyers determines whether the product is differentiated or Identical.

Like the perfect informatory, the monopolistic competitors operates with perfect information . and as under perfect competitions , firms can easily” Enter or Leave” the Industry.

     The Monopolistic Competitor in the short & Long run.

The Monopolistic Competitor in the Short run

• The Monopolistic competitors can make a profit or take a loss in the short run.

Monopolistic Competitor Making a Profit in the short run.

[pic 1]

Monopolistic Competitor taking a loss in the short run.

[pic 2]

The Monopolistic Competitor in the Long run

• The Monopolistic Competitor Breakeven or maker zero economic profit.

[pic 3]

Who is more efficient: The Monopolistic Competitor or  the perfect competitor?

• Both the monopolistic competitor and the perfect competitors make zero economic profits in the long run.
• The monopolistic competitor charges a higher price and has a lower output than the perfect competitor. And the perfect competitor is a more efficient producer than is the monopolistic competitor.

PRODUCT DIFFERENTIATION

 Differentiated means the buyer, for whatever reason, makes a difference between one product and another

What makes good or service differ from other?

• Convenience, ambience, reputations of the sellers, a appeals to your vanity , unconscious fears & desire, as well as snob appeals

ADVERTISING and MONOPOLISTIC COMPETITION

• Important way that monopolistic competitor can differentiate, his good or service from those of his competitors is by ADVERTISING.

Advertising

- helps new firm break into business