1. # McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Monopolistic Competition and Oligopoly 9

2. 9-2 Monopolistic Competition Relatively large number of sellers Differentiated products Easy entry and exit LO1

3. 9-3 Price and Output in Monopolistic Competition Demand curve is downward- slopping Elasticity of demand is less than infinity Factors affect elasticity of demand LO2

4. 9-4 The Short Run: Profit or Loss LO2 Quantity Price and Costs MR = MC MC MR D1D1 ATC Economic Profit Q1Q1 A1A1 P1P1 0

5. 9-5 The Short Run: Profit or Loss LO2 Quantity Price and Costs MC MR D2D2 ATC Loss Q2Q2 A2A2 P2P2 0 MR = MC

6. 9-6 The Long Run: Only a Normal Profit LO2 Quantity Price and Costs MC MR D3D3 ATC Q3Q3 P 3 = A 3 0 MR = MC

7. 9-7 Oligopoly A few large firms dominate the market Homogeneous or differentiated products High degree of Mutual interdependence High barriers of entry Price rigidity and non-price competition LO3

8. 9-8 Kinked Demand Curve Model Assumptions: Rivals match price reductions Rivals ignore price increses LO5

9. 9-9 Kinked-Demand Curve LO5 MR 2 D2D2 D1D1 MR 1 Q0Q0 MC 1 MC 2 P0P0 e f g

10. 9-10 Kinked-Demand Curve Criticisms Explains inflexibility, not price Prices are not that rigid LO6

11. 9-11 Price Leadership Model Assumptions: Dominant firm initiates price changes Other firms follow the leader LO6

12. 9-12 Perfect Collusion Cartels: a group of firms or nations that collude to formally agree to the same price restrict output levels for members LO6