Microeconomics

Leeds, von Allmen and Schiming

Chapter 11, Monopolistic Competition

1. Assumptions of Monopolistic Competition

   1. Easy entry and exit

   2. Many firms, each small relative to the market

   3. Differentiated, but similar, product
       

2. Short run profit maximization

   1. Demand and marginal revenue

   2. Product differentiation

       ==> customer loyalty

           ==> market power

              ==> downward sloping demand

   3. Marginal revenue and marginal cost, again

   4. Breakeven point and shutdown point, again

3. Monopolistic competition in the long run

   1. Profits as a signal for entry

   2. Entry, exit and the incumbent's demand curve

4. Monopolist competition and perfect competition compared

   1. Downward sloping demand versus perfectly elastic demand

   2. Production with excess capacity versus production at LAC minimum

   3. Variety

5. Advertising: Information or Persuasion

   1. Brand identity - Brand loyalty: Advertising as an investment

   2. Types of advertising

      1. Informational

      2. Persuasive

      3. Search goods

      4. Experience goods

   3. Spurious differences