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Mizzou ECONOM 1051 - Monopolistic Competition/Oligopolies
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ECON 1051 1nd Edition Lecture 34 Outline of Last Lecture I. Using ATC to Determine Profitability of a Firm II. When to Shut Down vs. When to Keep Producing III. Long-Run Story in Perfectly Competitive Markets Outline of Current Lecture I. Monopolistic CompetitionII. Differentiating Your Product III. Defending a Brand NameIV. Oligopoly V. Barriers to Entry Current LectureI. Monopolistic Competitiona. A market structure in which barriers to entry are low and firms compete by selling similar, but not identical, products i. Because each firm sells differentiated product, each firm is able to raise the price (if it deems it to be profitable) without fear of losing all its customers. Some of it customers will be willing to pay a high price because they view the product as sufficiently different. b. Zero Economic Profits for Monopolistically and Perfectly Competitive firms in the long run i. Introduce new technology1. If a firm introduces new technology that allows it to sell a good or service at a lower cost, competing firms will eventually be able to duplicate that technology and eliminate the firm’s profits. a. But this result hold only if the firm stands still and fails to find new ways of differentiating its products or fails to find new ways of lowering the cost producing its product b. To stay ahead, a firm has to offer consumer goods or services that they perceive to have greater value than those competing firms offer. Value can take the form of product differentiation, or it can take the form of a lower price. II. Differentiating Your Product These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.a. Marketingi. All the activities necessary for a firm to sell a product to a consumerb. Brand management i. The actions of a firm intended to maintain the differentiation of a productover time c. Advertising i. If the increase in revenue that results from advertising is greater than the increase in costs, the firm’s profits will rise III. Defending a Brand Namea. Trademarki. Can apply for trademark, which grants legal protection against other firmsusing its product’s name.1. Legally enforcing trademarks can be difficult. U.S. firms often find it difficult to enforce their trademarks in the courts of some foreign countries. IV. Oligopoly a. A market structure in which a small number of interdependent firms compete i. One measure of the extent of competition in an industry is the concentration ratio which states the fraction of each industry’s sales accounted for by its four largest firms1. Most economists believe that a four-firm concentration ratio greater than 40 percent indicates that an industry is an oligopoly b. To analyzei. Can’t rely on the same types of graphs used with perfect competitive markets and monopolistic competition for two reasons:1. We need to use economic models that allow us to analyze the more complex business strategies of large oligopoly firms2. Even in determining the profit-maximizing price and output for an oligopoly firm, demand curve and cost curves are not as useful as in the cases of perfect competition and monopolistic competition c. Game Theory i. The approach we use to analyze competition among oligopoliesii. Can be used to analyze any situation which individuals or groups interact V. Barriers To Entry a. Ownership of a Key Inputi. If production of a good requires a particular input, then control of that input can be a barrier to entry b. Government-Imposed Barriersi. Many large firms employ lobbyists to convince state legislators and members of congress to pass laws favorable to the economic interests of the firms c. Patenti. The exclusive right to product for a period of 20 years from the date the patent is filed with the governmentd. Occupational licensing i. How governments restrict competition 1. Tariffs/Quotasa. Imposed on foreign competitions as a barrier to enter competition 2. Public franchisea. Granting a firm a public franchise making it the exclusive legal provider of a good or


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Mizzou ECONOM 1051 - Monopolistic Competition/Oligopolies

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