Unit_9_Monopolistic_Competition

Monopolistic Competition

A market structure where many firms sell products that are differentiated from one another, giving them some control over the price.

Product Differentiation

Features of a firm’s product that make it different from the offerings of other firms, leading to less perfect substitutes.

Downward Sloping Demand

The type of demand faced by monopolistically competitive firms where an increase in price results in a decrease in quantity demanded.

Price Markup

The difference when the price consumers pay is higher than the marginal cost of production.

Marginal Revenue (MR)

The additional revenue gained from selling one more unit of a product, which is less than the price in monopolistic competition.

Average Total Cost (ATC)

Total costs per unit of output, which equal price in the long run under monopolistic competition.

Long-run Equilibrium

A situation where firms in a monopolistic competition make zero economic profits, with price equaling average costs.

Deadweight Loss

A loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Elastic Demand

A situation where a small change in price leads to a large change in the quantity demanded.

Imperfect Substitutes

Products that are differentiated enough that they do not serve as perfect substitutes for one another.

Loss Minimizing Quantity

The output level a firm produces to minimize its losses when it cannot cover its total costs.

Breakeven Point

The level of output at which total revenue equals total costs, resulting in zero profit.

Entry and Exit in Markets

The mechanism by which new firms enter a profitable market and existing firms leave an unprofitable market.

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a good versus what they actually receive.

Transaction Costs

Expenses incurred when buying or selling goods or services that do not affect the product's quality.

Switching Costs

Costs that consumer incur as a result of changing from one supplier to another.

Brand Name and Reputation

The perceived value and recognition of a company or product in the market that differentiates it from competitors.

Fixed Costs

Costs that do not vary with the level of output produced, such as rent or salaries.

Variable Costs

Costs that vary directly with the level of output, such as materials and labor.

Natural Monopoly

A market structure where a single firm can supply the entire market at a lower cost than two or more firms.

Market Power

The ability of a firm to influence the price of its product or the terms of the market.

Market Structure

The organizational and other characteristics of a market.

Optimal Price and Quantity

The price and output level that maximizes a firm’s profits in monopolistic competition.