1. Monopolistic Competition
MicroMod8

2. Best of Both Worlds? Seems contradictory but these firms:
are monopolistic
face downward sloping demand curve because their product is unique, differentiated (unlike perfect competition) & can make own price (like monopoly)
are competitive
most common type of firm in the marketplace
nearly free entry into and exit from the market (like perfect competition)
no economic profits in the long term

3. Best of Both Worlds?
Basically the whole module is explained on Table 1 on page 345
Traits shared with all market structures
Goal is to maximize profits
Maximizing rule - set Q where MR = MC
Can earn economic profits in the short run
Traits shared ONLY with monopolies, oligopolies
P > MC
not a price taker
creates a deadweight loss for society
Traits shared ONLY with perfect competition
Many firms
easy entry and exit
No economic profits in long run

4. Short Run Operations Graph very similar to monopoly graph except for
thinner profit area
usually more elastic demand curve (more choices for consumers)
MonComps always produce on downward slope of ATC - phenomenon called excess capacity
that is MonComps could always choose to produce more at efficient scale but do not to maintain higher profit margin

5. Short Run Operations

6. Comparison

7. Comparison

8. Observations
Perfect competition no deadweight loss - social economic welfare maximized but difficult for producers in short term, zero profit in long term
Monopoly largest deadweight loss - social economic welfare minimized but easy for producers in short, much profit in long term too

9. Observations
Oligopolies act like mini-monopolies mathematically but eventually profits will attract more producers and move towards perfect competition in long run if collusion force is weak and can’t fix prices

10. Observations
MonComps have smallest deadweight loss - no effective government intervention to eliminate deadweight loss is realistically possible
firms are too numerous and markets too diverse
administrative costs would exceed economic welfare profits

11. Observations
In long run though like perfect competition, MonComps will make zero economic profit because of easy entry and exit
Increased competition flattens demand curve but when firms begin to experience losses, firms leave the market  less substitutes available, demand becomes more inelastic and climbs above ATC again

12. Related Externalities
Product-variety
New products enter market, flattens demand, generates more consumer surplus
Business-stealing
New products enter market, flattens demand, takes away customers and profits from existing producers

13. Advertising
The art of reducing the effects of the externalities of competition by reaching out to potential customers and providing them with information about your products

14. To Ad or Not to Ad? Pros Cons
Ads provides consumers with vital information
Ad content matters little - cost of ad itself indicator of company’s faith in quality of the product
Cons
Ads often mislead consumers
Cause them to act in a way that is contrary to Law of Demand - pay too much for goods when they should find cheaper substitutes

15. Brand Effects Ads are tied to product branding
Brand name goods sold right next to other generics for a higher price

16. Brand Effects
Brand name companies then forced to maintain perception of higher quality to justify higher prices → therefore have to advertise more

17. Brand Effects
Brand names more familiar in marketplace, could often be cheaper and better products out there but they are unknown to customers