Chapter 9: Monopolistic Competition and Oligopoly
LEARNING OBJECTIVES
The steps to achieve the learning objectives include reading sections from your textbook and the “causation chain game,” which is available directly on the Tucker web site. The steps also include references to “Ask the Instructor Video Clips,” the “Graphing Workshop” available through EconCentral on the Tucker website.
#1 - Explain monopolistic competition in the short run.
Step 1Read the sections in your textbook titled “The Monopolistic Competition Market Structure,” “The Monopolistically Competitive Firm as a Price Maker, and subsection “Monopolistic Competition in the Short Run.”
*Step 2Watch the Graphing Workshop “See It!” tutorial titled “Short-Run Equilibrium in Monopolistic Competition.” Study that monopolistic competitive firms set the price and quantity corresponding to MR = MC.
Step 3Read the Graphing Workshop “Grasp It!” exercise titled “Short-Run Equilibrium in Monopolistic Competition.” This exercise uses a slider bar to compute profit for a monopolistic firm at different quantities.
Step 4Create a new graph at the Graphing Workshop “Try It!” exercise titled “Short-Run Equilibrium in Monopolistic Competition.” This exercise illustrates a typical monopolistic competitive firm earning a positive economic profit in the short run.
The Result Following these steps, you have learned that monopolistic competition is characterized by many firms with differentiated products and few barriers to entry. As in the perfect competitive and monopoly models, a monopolistically competitive firms operates where MR = MC.
#2 - Explain monopolistic competition in the long run.
Step 1Read the subsection in your textbook titled “Monopolistic Competition in the Long Run” and the section titled “Comparing Monopolistic Competition and Perfect Competition.”
*Step 2Watch the Graphing Workshop “See It!” tutorial titled “Long-Run Equilibrium in Monopolistic Competition.” Study that monopolistic competitive firms earn zero economic profit in the long run and operate with excess capacity.
Step 3Read the Graphing Workshop “Grasp It!” exercise titled “Long-Run Equilibrium in Monopolistic Competition.” This exercise uses a slider bar to show that a firm operates at the break-even price and output in the long run.
Step 4Create a new graph at the Graphing Workshop “Try It!” exercise titled “Long-Run Equilibrium in Monopolistic Competition.” This exercise illustrates that a monopolistically competitive producer of blue jeans just breaks even in the long run after the demand for jeans increased in the short run.
Step 5Play the “Causation Chains Game” titled “New Firms, Advertising, and Demand.”
The ResultFollowing the steps, you have learned that a monopolistic competitive firm operates in the long run at a higher price produces less quantity than a perfectly competitive firm. As a result, the monopolistic competitor operates with excess capacity and like a monopolist it misallocates resources.
#3 - Understand oligopoly market structures including price leadership, the cartel, and game theory.
Step 1Read the sections of your textbook titled “The Oligopoly Market Structure,” “Price and Output Decisions for an Oligopolist,” and “Review of the Four Market Structures.”
Step 2Watch the Graphing Workshop “See It!” tutorial titled “A Duopoly Game.” Study how game theory can be used to explain pricing decisions for the only two retailers of Gus’s and Filip’s gasoline stations in a town.
Step 3Listen to the “Ask the Instructor Video Clip” titled “Is the Auto Industry More Competitive Now Than in the Past?” You will learn that the answer is more complex because of foreign competition.’’
Step 4Listen to the “Ask the Instructor Video Clip” titled “What Are the Differences Among the Four Market Structures?” You will learn examples to illustrate monopoly, perfect competition, monopolistic competition, and oligopoly.
The ResultFollowing these steps, you have learned that oligopolies are characterized by a few firms with either homogeneous or differentiated products and high barriers to entry. You should be able to explain each oligopoly model and compare the market characteristics of the four market structures.
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