Copyright © 2003 Pearson Education, Inc.Slide 6-1  模型目的。  內生變數：決定模型兩軸。  行為法則：畫出模型曲線。  均衡：決定均衡之內生變數。  外生衝擊 判斷是否為外生變數改變？ 判斷此外生變數之改變將影響哪些行為法則？ 判斷此外生變數之改變造成行為法則何種影響？ 學習經濟模型五步驟 外外生衝擊

Copyright © 2003 Pearson Education, Inc.Slide 6-2  The Effects of Increased Market Size The number of firms in a monopolistically competitive industry and the prices they charge are affected by the size of the market. Monopolistic Competition and Trade CC curve: AC= n x (F/S) + c n, S AC PP curve: P = c + 1/(b x n)

Copyright © 2003 Pearson Education, Inc.Slide 6-3 Figure 6-4: Effects of a Larger Market Cost C, and Price, P Number of firms, n CC 1 n1n1 P 1 1 PP n2n2 P2P2 2 CC 2 Monopolistic Competition and Trade

Copyright © 2003 Pearson Education, Inc.Slide 6-4  The monopolistic competition model can be used to show how trade leads to: A lower average price due to scale economies The availability of a greater variety of goods due to product differentiation Imports and exports within each industry (intra- industry trade) Monopolistic Competition and Trade

Copyright © 2003 Pearson Education, Inc.Slide 6-5  Limitations of the Monopolistic Competition Model Two kinds of behavior arise in the general oligopoly setting that are excluded by assumption from the monopolistic competition model: –Collusive behavior: –Can raise the profits of all firms at the expense of consumers –May be managed through explicit agreements or through tacit coordination strategies –Strategic behavior: –Is adopted by firms to affect the behavior of competitors in a desirable way –Deters potential rivals from entering an industry The Theory of Imperfect Competition

Copyright © 2003 Pearson Education, Inc.Slide 6-6  Gains from an Integrated Market: A Numerical Example International trade allows creation of an integrated market that is larger than each country’s market. –It thus becomes possible to offer consumers a greater variety of products and lower prices. Monopolistic Competition and Trade

Copyright © 2003 Pearson Education, Inc.Slide 6-7 Example: Suppose that automobiles are produced by a monopolistically competitive industry. –Assume the following: –b = 1/30,000 –F = $750,000,000 –c = $5000 –There are two countries (Home and Foreign) that have the same costs of automobile production. –Annual sales of automobiles are 900,000 at Home and 1.6 million at Foreign.S H = 900,000 ; S F = 1,600,000 ; S = S H + S F = 2,500,000. –CC curve : AC= c + n  (F/S) = 5, ,000,000  (n / S) –PP curve: P = c + 1/(b  n) = 5000+(30,000/n) Monopolistic Competition and Trade

Copyright © 2003 Pearson Education, Inc.Slide 6-8 CC AC=5000+(750,000,000/900,000) n =[5+ ( )n]  PPP=5000+(30,000/n)=[5+( )]  n Figure 6-5: Equilibrium in the Automobile Market Monopolistic Competition and Trade (a) Home Price per auto, in thousands of dollars Number of firms, n AC=P → [5+ ( )n]  1000=[5+( )]  1000 →( 75 / 90 ) n =30 / n → n 2 = 36 → n = n ∴ AC= [5+ ( ) 6 ]  1000 =10  1000 ∴ P=[5+( )]  1000=10 

Copyright © 2003 Pearson Education, Inc.Slide 6-9 Figure 6-5: Continued Monopolistic Competition and Trade Price per auto, in thousands of dollars Number of firms, n CC AC=5000+(750,000,000/1,600,000) n =[5+ ( )n]  P=5000+(30,000/n)=[5+( )]  n PP AC=P → [5+ ( )n]  1000=[5+( )]  1000 →( 75 / 160 ) n = 30 / n → n 2 = 64 → n = n ∴ AC= [5+ ( ) 8 ]  1000 = 8.75  1000 ∴ P=[5+( )]  1000=8.75  (b) Foreign

Copyright © 2003 Pearson Education, Inc.Slide 6-10 Figure 6-5: Continued Monopolistic Competition and Trade Price per auto, in thousands of dollars Number of firms, n CC AC=5000+(750,000,000/2,500,000) n =( n )  1000 P=5000+(30,000/n)=[5+( )]  n PP (c) Combined market

Copyright © 2003 Pearson Education, Inc.Slide 6-11 Table 6-2: Hypothetical Example of Gains from Market Integration Monopolistic Competition and Trade