Post on 15-Nov-2014
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Monopolistic Competition
Ji Hyun, Sayaka, Johan, Avu, Oat
Nature of Monopolistic Competition
• High profile firms with high recognition brandso selling similar products
• Branding and advertisingo differentiated products as superior
unique aspects• attracted by supernormal profits
o supernormal profit: profit that exceeds the normal profit or return from the input factors
Assumptions
• Size and Number of Firmso relatively many but
some small• Barriers to Entry
o relatively low
• Consumer Sovereigntyohigh
Determining costs, revenues and profit
Price
Output
Short-run
Determining costs, revenues and profit
Price
Output
Demand (AR)
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MC
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MC
AC
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MC
AC
MC=MR
Q1
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MC
AC
MC=MR
Q1
P1
C1
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MC
AC
MC=MR
Q1
P1
C1
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
In the long-run
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MCIn the long-run
Q2
Determining costs, revenues and profit
Price
Output
Demand (AR)
MR
MCIn the long-run
Q2
AC
P1, C1
Pros and Cons
• The best thing about monopolistic competition is product differentiation
• Unlike perfect competition, products aren't generic, they vary in style, taste etc.
• Unlike monopoly, there are multiple products for varying needs• Therefore, both the producer and consumer have market
sovereignty• However, like a monopoly, there is some inefficiency, and there
are not long term profits
Pros & Cons vs. Perfect Competition
• In the short run, monopolistic competition markets enjoy supernormal profits as MC = MR
• There is product differentiation, unlike in a perfect competition• There is producer sovereignty, unlike in a perfect competition
• However, firms not caring about each other causes lack of
efficiency in firms• Firms have extra capacity• Firms produce too little
Pros and Cons vs. Monopoly
• Product differentiation: Monopolies have a single "unique" product, while monopolistic competitions boast many different products
• Very few barriers to enter the market• Consumer sovereignty with ability to choose
• The single firm has absolute power• Slightly better in the long term
Examples
• Soft drink companieso Coca-cola, Pepsi...
• Sports shoes companieso Adidas, Nike...
• petrol stations, restaurants, hairdressers and builders...
Advertising Techniques
• Vending machineso Easy access to both students and faculties
• Provide sport teams with uniforms • P.E. Uniforms• Sport events:
o Baseball: shoot out shirts to audienceo Basketball: shoot out competition, winner get a free tee shirt
• Use well-known teachers/students as models for our products• Available in various styles/sizes
Styles
• Ji Hyun-IT • Ji Hyun-IT Baby• Ji Hyun-IT Formal• Ji Hyun-IT Active• Ji Hyun-IT Goth
Ji Hyun-IT
... Model : Mr. James LindopHistory / Geography Teacher
"I love Ji-Hyun IT!"
Ji Hyun-IT Baby
Model: Deepak ParwaniStudent / Ji-Hyun IT Lover
"Ji-hyun IT is the ____"
Ji Hyun-IT Formal
Ji Hyun-IT Active
Ji Hyun-ITGoth