1. Monopolistic Competition
Chapter 17

2. Edward Chamberlin
Theory of Monopolistic Competition (1933)

3. Joan Robinson
The Economics of Imperfect Competition
(1933)

4. Between Monopoly and Perfect Competition
Like monopoly:
Unique product.
Downward sloping demand & MR curves.
Price > MC
Like perfect competition:
Other products are substitutes—although not perfect substitutes.
Free entry and exit.
Economic profits are driven to zero.

5. Figure 1a Monopolistic Competitors in the Short Run

6. Figure 1b Monopolistic Competitors in the Short Run

7. Entry and Exit
Entry increases the availability of substitutes and shifts the demand curve to left.
Exit reduces the availability of substitutes and shifts the demand curve to the right.

8. Figure 2 A Monopolistic Competitor in the Long Run

9. Figure 3a Monopolistic versus Perfect Competition

10. Figure 3b Monopolistic versus Perfect Competition

11. Excess Capacity
Total average cost is not at a minimum.

12. Advertising Pros Provides information. Promotes competition. Cons
Increases costs.
Information can be misleading.

13. Brand Names

14. Table 1 Monopolistic Competition: Between Perfect Competition and Monopoly
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