Monopolistic Competition. Learning Objectives: What is Monopolistic Competition? How is it different from Perfect Competition or Monopoly? How does a.

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Presentation transcript:

Monopolistic Competition

Learning Objectives: What is Monopolistic Competition? How is it different from Perfect Competition or Monopoly? How does a monopolistically competitive firm maximize its profit? What is the long run outcome of a monopolistically competitive market? What is product differentiation?

Features of a Monopolistically Competitive Market Many buyers and sellers Firms are producing similar but not perfectly identical products Buyers can differentiate among products sold by different firms There is free entry and exit Example: Jewelry market Example: Toothpaste market

Profit Maximization for a Monopolistically Competitive Firm

Long Run Equilibrium in a Monopolistically Competitive Market

Product Differentiation or the Widening of Choice Comparative Advertising Brand value of a product Targeted or niche marketing R&D

Brand Myopia Successful product differentiation leading to lack of innovation and change in the firm Example: Blackberry Example: Nokia Example: Maggi

Optimal Advertising