c h a p t e r twelve © 2006 prentice hall business publishing economics r. glenn hubbard, anthony...
TRANSCRIPT
c h a p t e rc h a p t e r
twelvetwelve
© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
Prepared by: Fernando & Yvonn Quijano
Monopolistic Competition:The Competitive Model in a More Realistic Setting
2 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
After studying this chapter, you should be able to:
Explain why a monopolistically competitive firm has a downward-sloping demand curve.
Explain how a monopolistically competitive firm decides the quantity to produce and the price to charge.
Analyze the situation of a monopolistically competitive firm in the long run.
Compare the efficiency of monopolistic competition and perfect competition.
Define marketing and explain how firms use it to differentiate their products.
Identify the key factors that determine a firm’s profitability.
Starbucks: Growth through Product Differentiation
LE
AR
NIN
G O
BJE
CT
IVE
S
1
2
3
4
5
6
…the coffeehouse market is monopolistically competitive, rather than perfectly competitive.
3 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gMonopolistic Competition:
The Competitive Model in a More Realistic Setting
Monopolistic competition A market structure in which barriers to entry are low, and many firms compete by selling similar, but not identical, products.
4 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
The Demand Curve for a Monopolistically Competitive Firm
12 - 1The Downward-Sloping Demand for Caffe Lattès at a Starbucks
Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market
LEARNING OBJECTIVE1
5 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gDemand and Marginal Revenue for a Firm in a
Monopolistically Competitive Market
Marginal Revenue for a Firm with a Downward-Sloping Demand Curve
Demand and Marginal Revenue at a Starbucks
12 – 1
CAFFÈ LATTES SOLD PER WEEK
(Q)PRICE
(P)
TOTAL REVENUE
(TR = P x Q)
AVERAGEREVENUE
(AR – TR/Q)
MARGINAL REVENUE
(MR = ΔTR/ΔQ)
0
1
2
3
4
5
6
7
8
9
10
$6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
$0.00
5.50
10.00
13.50
16.00
17.50
18.00
17.50
16.00
13.50
10.00
-
$5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
-
$5.50
4.50
3.50
2.50
1.50
0.50
-0.50
-1.50
-2.50
-3.50
6 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gDemand and Marginal Revenue for a Firm in a
Monopolistically Competitive Market
12 - 2How a Price Cut Affects a Firm’s Revenue
Marginal Revenue for a Firm with a Downward-Sloping Demand Curve
7 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gDemand and Marginal Revenue for a Firm in a
Monopolistically Competitive Market
Marginal Revenue for a Firm with a Downward-Sloping Demand Curve
12 - 3The Demand and Marginal Revenue Curves for a Monopolistically Competitive Firm
8 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gLEARNING OBJECTIVE2
12 - 4Maximizing Profit in a Monopolistically Competitive Market
How a Monopolistically Competitive Firm Maximizes Profits in the Short Run
9 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g What Happens to Profits in the Long Run?
LEARNING OBJECTIVE3
How Does Entry of New Firms Affect the Profits of Existing Firms?12 - 5
How Entry of New Firms Eliminates Profits
Don’t Confuse Zero Economic Profit with Zero Accounting Profit
10 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g What Happens to Profits in the Long Run?How Does Entry of New Firms Affect the Profits of Existing Firms?
The Short Run and the Long Run For a Monopolistically Competitive Firm
12 – 2
11 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
The Rise and Fall of Apple’s Macintosh Computer
12 - 1
Macintosh lost its differentiation, but still has a loyal – if small – following.
12 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
The Short Run and the Long Run for the Macintosh
12 - 2
LEARNING OBJECTIVE3
13 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g What Happens to Profits in the Long Run?
A firm’s profits will be eliminated in the long run only if the firm stands still and fails to find new ways of differentiating its product or fails to find new ways of lowering the cost of producing its product.
Is Zero Economic Profit Inevitable in the Long Run?
14 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
Staying One Step Ahead of the Competition: Eugène Schueller and L’Oréal
12 - 2
Unlike many monopolistically competitive firms, L’Orèal has earned economic profits for a very long time.
15 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gComparing Perfect Competition and Monopolistic Competition
12 - 6Comparing Long-Run Equilibrium under Perfect Competition and Monopolistic Competition
LEARNING OBJECTIVE4
16 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
gComparing Perfect Competitionand Monopolistic Competition
The profit-maximizing level of output for a monopolistically competitive firm comes at a level of output where price is greater than marginal cost and the firm is not at the minimum point of its average total cost curve.
Excess Capacity under Monopolistic Competition
Consumers benefit from being able to purchase a product that is differentiated and more closely suited to their tastes.
How Consumers Benefit from Monopolistic Competition
17 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
Abercrombie and Fitch: Can the Product Be Too Differentiated?
12 - 3
Did Abercrombie and Fitch narrow its target market too much?
18 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g How Marketing Differentiates Products
LEARNING OBJECTIVE5
Marketing All the activities necessary for a firm to sell a product to a consumer.
Brand Management
Brand Management The actions of a firm intended to maintain the differentiation of a product over time.
19 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g What Makes a Firm Successful?
LEARNING OBJECTIVE6
12 - 7What Makes a Firm Successful?
20 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
Midnight Snack
Figure 1: Product differentiation shifting the demandcurve for a monopolistic competitor
Figure 2: “Spreading the overhead”
21 of 19© 2006 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien—1 st ed.
CH
AP
TE
R 1
2:
Mo
no
po
list
ic C
om
pet
itio
n:
Th
e C
om
pet
itiv
e M
od
el i
n a
Mo
re R
eali
stic
Set
tin
g
Brand management
Marketing
Monopolistic Competition