1. Monopolistic Competition
AP Microeconomics

2. Fast Food

3. Are fast food businesses monopolies?
One side would argue that when you travel or enter a food court, you have a choice among vendors, meaning there is REAL competition between the vendors.
Another side would argue that each possesses some aspect of monopoly, like when McDonald’s slogan was “Nobody does it like McDonalds” . Each fast-food provider offers a product that is differentiated from it’s rivals’.

4. What do they all have in common?
Their main goals is to compete in satisfying the same overwhelming demand…getting food fast, easily and at low prices.
But each firm offers distinctive, differentiated products that consumers will accept as substitutes.
Example:

5. Monopolistic Competition
Economists have categorized the fast food industry by monopolistic competition.
monopolistic competition: common in service industries…involves 3 conditions
1. Large numbers of competing producers
2. Differentiated product
3. Free entry into and exit from the industry in the long run

6. Check your understanding
Each of the following goods and services are differentiated products. Which are differentiated as a result of monopolistic competition and which are not? Explain your answers.
A. ladder
B. soft drinks
C. department stores
D. steel

7. Graphs: Monopolistic Competition

8. Long Run Equilibrium

9. Check your understanding
Currently a monopolistically competitive industry, composed of firms with U-shaped average total costs, is in long-run equilibrium. Describe how the industry adjusts, in both short and long run, in each of the following situations…

10. Situation #2 Situation #1
A technological change that increases fixed cost for every firm in the industry.
Situation #2
A technological change that decreases marginal cost for every firm in the industry.

11. Think about it…
Why, in the long run, is it impossible for firms in a monopolistically competitive industry to create a monopoly by joining together to form a single firm?

12. Is Monopolistic Competition Innefficient?

13. Lebron James Adidas Sponsorship Offer: $50 Million
Reebok Sponsorship Offer: $75 Million
Nike Sponsorship Offer: $90 Million

14. Answer the Following Why would Nike spend $90 million on LaBron James?
How does this signing reflect a monopolistically competitive market?
Do you agree with Nike’s signing? Why.

15. Check your understanding…
In which of the following cases is advertising likely to be economically useful? Economically wasteful? Explain.
A. advertisements on benefits of aspirin
B. advertisements for Bayer aspirin
C. advertisements for Tropicana orange juice
D. advertisements on the benefits of drinking orange juice
E. advertisements that state how long a plumber or an electrician has been in buisness.

16. Is having a successful brand name a barrier to entry?