Monopolistic Competition ■ Toothpaste e Crest and monopoly power Procter Gamble is the sole producer of Crest Consumers can have a preference for Crest---taste, reputation, decay preventing efficacy The greater the preference (differentiation) the higher the price Chapter 12 Slide 6
Chapter 12 Slide 6 Monopolistic Competition n Toothpaste l Crest and monopoly power u Procter & Gamble is the sole producer of Crest u Consumers can have a preference for Crest---taste, reputation, decay preventing efficacy u The greater the preference (differentiation) the higher the price
Monopolistic Competition ■ Question o Does Procter Gamble have much monopoly power in the market for Crest? Chapter 12 Slide 7
Chapter 12 Slide 7 Monopolistic Competition n Question l Does Procter & Gamble have much monopoly power in the market for Crest?
Monopolistic Competition a The Makings of Monopolistic Competition o Two important characteristics e Differentiated but highly substitutable products ◆ Free entry and exit Chapter 12 Slide 8
Chapter 12 Slide 8 Monopolistic Competition n The Makings of Monopolistic Competition l Two important characteristics uDifferentiated but highly substitutable products uFree entry and exit
A Monopolistically Competitive Firm in the Short and Long Run S/Q Short run $/Q MC Long RunMc AC AC LR MR SR MR Quantity Q Quantity
A Monopolistically Competitive Firm in the Short and Long Run Quantity $/Q Quantity $/Q MC AC MC AC DSR MRSR DLR MRLR QSR PSR QLR PLR Short Run Long Run
A Monopolistically Competitive Firm in the Short and Long Run a Observations(short-run e Downward sloping demand--differentiated product Demand is relatively elastic--good substitutes ●MR<P o Profits are maximized when Mr= mc e This firm is making economic profits Chapter 12 Slide 10
Chapter 12 Slide 10 n Observations (short-run) l Downward sloping demand--differentiated product l Demand is relatively elastic--good substitutes l MR < P l Profits are maximized when MR = MC l This firm is making economic profits A Monopolistically Competitive Firm in the Short and Long Run