Monopolistic Competition Analysis

The additional revenue generated by producing and selling one more unit of output.

The additional cost incurred by producing one more unit of output.

The point where a firm maximizes its profit by producing and selling the quantity of output where marginal revenue equals marginal cost.

The difference between total revenue and total cost. It represents the gain or loss a firm makes by producing and selling a given quantity of output.

The cost per unit of output, calculated by dividing total cost by the number of units produced.

The situation where a firm's average costs decrease as output increases. This often arises from greater efficiency as production scales up.

A firm that has exclusive control over a particular product or service in a market.

The difference between the price a monopolist charges and the average cost of production. It represents the extra profit a monopolist earns due to its market power.

A market structure where many firms sell similar but differentiated products, each firm has some control over its price, and new firms can enter the market.

The ability of a firm to differentiate its product from its competitors, giving it some control over its price.

A firm in monopolistic competition takes the prices charged by its rivals as given, meaning it doesn't expect its actions to significantly impact competitors' pricing.

A mathematical equation that shows how a firm's sales (Q) are influenced by factors like total industry sales (S), number of firms (n), the firm's own price (P), and the average price of competitors (P).

The assumption that all firms in the industry face the same demand conditions and have the same production costs.

The average cost increases as the number of firms in the industry increases because each firm produces less output, leading to higher average costs.

The average cost decreases as total industry sales increase because each firm produces more output, leading to lower average costs.

Trade involving the exchange of similar goods between countries.

The benefits a country gains from trading similar goods with other countries.

The production of a wider range of goods due to trade, leading to lower prices.

Specialized industries that require skilled labor, technology, and capital tend to have more intra-industry trade.

The exchange of goods between countries with similar economic structures and production capabilities.

The relationship between the number of firms in a monopolistically competitive market and the average cost of production. As the number of firms increases, the average cost of production also increases due to factors like increased competition and lower individual firm sales.

The relationship between the number of firms in a monopolistically competitive market and the price they charge. As the number of firms increases, the competition intensifies, driving prices down.

The point where the price curve (PP) intersects the average cost curve (CC) in a monopolistically competitive market. At this point, the number of firms in the market is stable, with no incentive for firms to enter or exit.

The situation where the price in a monopolistically competitive market is lower than the average cost of production. Firms face losses and have an incentive to exit the industry.

The situation where the price in a monopolistically competitive market is higher than the average cost of production. Firms are profitable and have an incentive to enter the industry.

The impact of international trade on monopolistically competitive markets. By increasing the size of the market, trade leads to lower average costs of production for firms through economies of scale.

The benefits of trade in monopolistically competitive markets. Consumers gain access to a wider variety of goods, and potentially benefit from lower prices due to reduced average costs.

The formula used to represent the average cost of production (AC) in a monopolistically competitive market, where "n" is the number of firms, "F" is fixed cost, "S" is the total market sales, and "c" is marginal cost.

A larger market size allows each firm to produce more, leading to lower average costs. This is depicted as a downward shift in the average cost curve.

When markets integrate, the overall market size increases, resulting in a greater number of firms and a wider variety of goods available.

The combined market, after integration, achieves a lower equilibrium price compared to the individual markets before integration. This is because the larger market promotes lower average costs and greater competition.

The equilibrium in a market is determined by the intersection of the supply and demand curves, representing the optimal balance of price and quantity.

The number of firms operating in a market is directly related to the market size, with larger markets allowing for more firms due to lower average costs.

The lower equilibrium price in an integrated market is driven by the combined effects of economies of scale (lower average cost) and increased competition amongst a larger number of firms.

The example of the automobile market demonstrates the gains from market integration. By integrating, the market achieved a lower price, a wider selection of vehicles, and increased production.

Industries, 2009 Metalworking Machinery 0.97 Inorganic Chemicals 0.97 Power-Generating Machines 0.86 Medical and Pharmaceutical Products 0.85 Scientific Equipment 0.84 Organic Chemicals 0.79 Iron and Steel 0.76 Road Vehicles 0.70 Office Machines 0.58 Telecommunication Equipment 0.46 Furniture 0.30 Clothing and Apparel 0.11 Footwear 0.10 This table shows the top industries in 2009 based on their concentration ratio which is a measure of industry concentration, with higher ratios indicating less competition. Metalworking Machinery and Inorganic Chemicals have the highest concentration ratio of 0.97, while Clothing and Apparel and Footwear have the lowest concentration ratios. This means that these two industries are likely to be more competitive than the other industries listed. An interesting trend is that manufacturing industries generally have a higher concentration ratio than service industries. These data suggest that there is a high, and very concentrated, level of competition in the Manufacturing Industry.

Increased competition has a sifting effect on firms. Less competitive firms are forced out of the market while more competitive firms expand.

When firms in the same industry have different marginal costs of production, the firm with a lower cost will produce more output at a lower price. This is a result of both firms facing the same demand curve. The firm with the lower marginal cost will then earn higher operating profits.

A firm's operating profits are a function of the firm's marginal cost. The higher the marginal cost, the lower the operating profits will be. If the marginal cost is too high, the firm will not be able to operate profitably and will shut down.

The cost of exporting products to another country, such as transportation, tariffs, and inspections.

Trade costs have two effects on firms. First, they explain why only a subset of firms export. This is because the cost of exporting may be too high for some firms. Second, they explain why exporters are larger and more productive firms. This is because firms that can afford to export are generally more efficient and have lower marginal costs.

Trade costs represent the costs associated with selling goods in foreign markets. These costs are often substantial and can make it unprofitable for firms to export. The firms with the most efficient production processes that are able to minimize their marginal costs will be able to afford the additional cost of exporting.

Both firms operate in their domestic (Home) market. Firm 1 exports to the Foreign market. Firm 2 does not find it profitable to export due to trade costs.