stic Competition
16 MONOPOLISTIC COMPETITION
WHAT’S NEW IN THE SEVENTH EDITION:
There are no major changes to this chapter.
LEARNING OBJECTIVES:
By the end of this chapter, students should understand:
what market structures lie between monopoly and competition.
competition among firms that sell differentiated products.
how the outcomes under monopolistic competition and under perfect competition compare.
the desirability of outcomes in monopolistically competitive markets.
the debate over the effects of advertising.
the debate over the role of brand names.
CONTEXT AND PURPOSE:
Chapter 16 is the fourth chapter in a five-chapter sequence dealing with firm behavior and the organization of industry. The previous two chapters developed the two extreme forms of market structure—competition and monopoly. The market structure that lies between
competition and monopoly is known as imperfect competition. There are two types of imperfect competition—monopolistic competition and oligopoly. This chapter addresses monopolistic competition while the final chapter in the sequence addresses oligopoly. The analysis in this chapter is again based on the cost curves developed in Chapter 13.
The purpose of Chapter 16 is to address monopolistic competition—a market structure in
which many firms sell products that are similar but not identical. Monopolistic competition differs from perfect competition because each of the many sellers offers a somewhat different product. As a result, monopolistically competitive firms face a downward-sloping demand curve while competitive firms face a horizontal demand curve at the market price. Monopolistic competition is extremely common.
KEY POINTS:
A monopolistically competitive market is characterized by three attributes: many firms, differentiated products, and free entry.
The long-run equilibrium in a monopolistically competitive market differs from that in a perfectly competitive market in two related ways. First, each firm in a monopolistically competitive market has excess capacity. That is, it chooses a quantity that puts it on the downward-sloping portion of the average-total-cost curve. Second, each firm charges a price above marginal cost.
Monopolistic competition does not have all of the desirable properties of perfect competition. There is the standard deadweight loss of monopoly caused by the markup of price over marginal cost. In addition, the number of firms (and thus the variety of products) can be too large or too small. In practice, the ability of policymakers to correct these inefficiencies is limited.
The product differentiation inherent in monopolistic competition leads to the use of advertising and brand names. Critics of advertising and brand names argue that firms use
them to manipulate consumers’ tastes and to reduce competition. Defenders of advertising and brand names argue that firms use them to inform consumers and to compete more vigorously on price and product quality.
CHAPTER OUTLINE:
I. Between Monopoly and Perfect Competition
A. The typical firm has some market power, but its market power is not as great as that
described by monopoly.
B. Firms in imperfect competition lie somewhere between the competitive model and the
monopoly model.
C. Definition of oligopoly: a market structure in which only a few sellers offer similar
or identical products.
1. Economists measure a market’s domination by a small number of firms with a
statistic called a concentration ratio.
2. The concentration ratio is the percentage of total output in the market supplied
by the four largest firms.
3. In the . economy, most industries have a four-firm concentration ratio under 50%.
D. Definition of monopolistic competition: a market structure in which many firms sell
products that are similar but not identical.
1. Characteristics of Monopolistic Competition
a. Many Sellers
b. Product Differentiation
曼昆经济学原理英文版文案加习题答案15章
