1.Monopolistic competition is a market situation characterized by many producers of a heterogeneous product.
2.Key assumptions in the model of monopolistic competition are; large numbers of producers; product differentiation; and relative ease of entry. This means that economic profits can exist in the short run, but entry of new firms will insure a long-run equilibrium with zero economic profit.
3.Because of product differentiation, a firm at equilibrium produces less than the socially optimal output. This underproduction is referred to as excess capacity.
4.Monopolistically competitive firms produce a smaller output at a higher price than firms (with the same costs) engaged in pure competition.
5.Marginal cost is not equal to average, long-run equilibrium cost in monopolistic competition.
6.some economists argue that no insights can be derived from the monopolistic competition model that cannot be derived from the pure competition model. In general, however, most economist feel that the model of monopolistic competition adds richness to the theory of the firm.
1.Oligopoly is the market structure in which there are only a few firms producing goods that are either homogeneous or differentiated.
2.Because there are so few firms, they are interdependent, and they take this interdependence into account in there economic decision making.
3.Oligopolies can be broken down into three classes. class I oligopolies are characterized by independent action. class II oligopolies are cartels. class III oligopolies have imperfect joint action.
4.Cartels are threatened by chiseling behavior on the part of individual mimbers of the cartel. The larger the number of firms in the cartel, the harder it is for the cartel to hold together.
5.Successful cartels have historically used governments to police the cartel.
6.Price leadership is common in class III oligopolies. price leadership can be by a dominant firm or, in mature industries, by a historical leader.
7.Oligopolies are characterized by extensive use of non-price competition.
8.Barriers to entry are important in oligopoly, just as they are in monopoly.
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