Economics 1010 Key Terms Chapter 13 PDF

**[Economics 1010 - Key Terms -- Chapter 13]** 1. **What is Monopolist Competition?** a. **Is a Market in which?** i. **A large number of firms compete. (More than in Perfect Competition)** ii. **Each Firm produce a "Differentiated" product.** iii. **F...

**[Economics 1010 - Key Terms -- Chapter 13]** 1. **What is Monopolist Competition?** a. **Is a Market in which?** i. **A large number of firms compete. (More than in Perfect Competition)** ii. **Each Firm produce a "Differentiated" product.** iii. **Firms compete on product quality, price and marketing.** iv. **Firms are free to enter and exit the industry.** b. **Assumptions** v. **Many Many Firms producing in the Market** vi. **Firm sell "Differentiated" Products** vii. **Selling Differentiated products gives the Firm it's Monopoly Power** viii. **The Market Demand Curve becomes the Firm's Demand Curve** ix. **Many Buyers must accept the Monopolist Price** x. **Firms are "Price Setters"** xi. **Firms face a "Downward Sloping Demand Curve"** xii. **For every firm, P \> MR** xiii. **Firms profit maximize where MR = MC** xiv. **Profits or Losses are present in the Short-Run ONLY** xv. **NO Barriers to Entry into the Market** xvi. **Free Entry or Exit in the Market in the Long-Run** c. **How Monopoly Arises:** xvii. **Product Differentiation** d. **Price Setter:** xviii. **Is a firm sets the market price from the market demand curve.** xix. **Example: Tim Horton's or Starbucks** e. **Large Number of Firms:** xx. **Small Market Share** xxi. **Ignore Other Firms** xxii. **Collusion Impossible** f. **Product Differentiation:** xxiii. **Is when a firm makes a product that is slightly different than it is competitor.** xxiv. **Example: The Big Mac vs The Whopper** g. **Competing on Quality, Price & Marketing:** xxv. **Quality:** 1. **Example: Keg Steak vs Smitty's Steak** xxvi. **Price:** 2. **A firm that produces a higher quality product can charge a higher price than the firm that produced the lower quality product.** 3. **Example: McDonalds's Coffee vs Starbuck's Coffee** xxvii. **Marketing:** 4. **A firm in monopolistic competition MUST market it's product.** 5. **Two Types of Marketing:** a. **Advertising:** i. **Example: Pizza Hut vs Dominoes** b. **Packaging:** ii. **Example: Pharmaceutical Companies -- Name Brand drugs as Tylenol vs No-Name.** h. **Entry & Exit:** xxviii. **No Barriers to Entry or Exit** xxix. **When current firms are making profits in the market, New firms enter.** xxx. **When current firms are making losses in the market, Old firms exit.** ***NOTE: Measures of Concentration will NOT be covered in this course. pp. 307 - 309*** ***All Question regrading this material have been removed from the Test bank.*** 2. **Price & Output in Monopolistic Competition:** i. **Firm's Short-Run Output & Price Decision:** xxxi. **Looks and Acts Identical to a MONOPOLY.** xxxii. **Economic Profit in the Short-Run:** 6. **Graph on p. 310 of the Textbook** xxxiii. **Economic Loss in the Short-Run:** 7. **Graph on pa. 311 of the Textbook** j. **Firm's Long-Run Output & Price Decision:** xxxiv. **Long-Run: Zero Economic Profits** xxxv. **Profit Maximizing Quantity is where,** [**P** **=** **ATC**]{.math.inline} xxxvi. **It is the Point of Tangency of the Demand Curve to the ATC Curve** xxxvii. **Costs Curves Do NOT change.** xxxviii. **Demand and MR curves Shift and Rotate inward with the introduction of New Products by other competitive firms.** xxxix. **Graph on p. 311 of the Textbook** 3. **Monopolistic Competition & Perfect Competition:** k. **In the Long-Run the Monopolistically Competitive firm will produce less and set a higher price than an Perfectly Competitive firm.** l. **Excess Capacity:** xl. **Is when a firm produces a quantity that is less than minimum of ATC, in other words less than efficient scale or MES.** xli. **MC Firms produce less than MES in the Long-Run, unless...........** xlii. **Graph on p. 312 of the Textbook** m. **Markup:** xliii. **Is the amount by which Price exceeds Marginal Cost** xliv. [**Markup** **=** **(P** **−** **MC)**]{.math.inline} xlv. **Graph on p. 312 of the Textbook** 4. **Is Monopolistic Competition Efficient?** n. **No.** o. **In the long-run, it produces less than MES.** 5. **Can a Monopolistically Competitive Industry ever return to Perfect Completion?** p. **Yes.** q. **If consumer believe that the products are "Perfect Substitutes" for one another, then the Demand Curve and MR Curve will continue to rotate, and become flatter, until P = MR = AR = The Firm's Perfectly Elastic Demand Curve.** r. **Graph shown in Class Lecture.** 6. **Product Development & Marketing:** s. **Product Development:** xlvi. **Profit-Maximizing Product Development** xlvii. **Efficiency & Product Development** t. **Advertising:** xlviii. **Advertising Expenditures:** 8. **Advertising Costs are FIXED Costs.** 9. **Shifting AFC and ATC Upward.** 10. **Graph on p. 315 of the Textbook** xlix. **Change in Demand:** 11. **If one firm's advertising is successful in acquiring other firm's customers, then:** c. **It Increases the Demand for the firm who is advertising.** d. **& Decreases Demand and make the demand curve more "Elastic" for the other firms in the industry.** 12. **Graph on p. 316** u. **Using Advertising to Signal Quality:** l. **A firm is spending millions of dollars on advertising, then the consumer comes to believe that it MUST be a higher quality product.** li. **It is sending a "Signal" to the customer that this product is better because the firm is spending more money on advertising.** v. **Brand Names:** lii. **Many firms create and spend a lot of money promoting a "Brand Name".** liii. **Why?** liv. **Basic Answer: A Brand Name provides information to consumers about the quality of a product and is an incentive to the producer to achieve a high and consistent quality standard.** lv. **Example: Hotels -- Best Western** w. **Efficiency of Advertising & Brand Names:** lvi. **It provides consumers with information about the precise nature of product differences and product quality.** lvii. **They benefit the consumer and enable a better product choice to be made.** lviii. **BUT -- The Opportunity Cost of the Additional information must be weighed against the gain to the consumer.**