Ch 8 Managing in Competitive, monopolistic and Monopolistically Competitive Markets

Comparative Advertising

A firm attempts to increase the demand for its brand by differentiating its products from competing brands

Monopoly

A market structure in which a single firm serves an entire market for a good that has no close substitutes; market demand is the same demand curve; doesn't have unlimited power

Brand Equity

Additional value added to a product because of its brand

Marginal Revenue

Change in revenue due to the last unit of output; is the market price for a competitive firm

Monopolistic Competition

1. there are many buyers and sellers 2. each firm produces a differentiated product 3. there is free entry and exit

Output Rule

A profit-maximizing monopolist should produce the output, _𝑄_𝑀_, such that marginal revenue equals marginal cost

Monopoly Power

Economies of scale, Economies of scope, Cost complementarity, Patents and other legal barriers

Economies of Scale

Exists when long run avg costs decline as output increases

Diseconomies of Scale

Exists whenever long run avg costs increase as output increases

Pricing Rule

Given the level of output, _𝑄_𝑀_, that maximizes profits, the monopoly price is the price on the demand curve corresponding to the _𝑄_𝑀_ units produced

Niche Marketing

Goods and services are tailored to meet the needs of a segment of the market

Long Run Competitive Equilibrium

In the long run, perfectly competitive firms produce a level of output such that 𝑃=𝑀𝐶; 𝑃=𝑚𝑖𝑛𝑖𝑚𝑢𝑚 𝑜𝑓 𝐴𝐶

Green Marketing

Targeting consumers who are concerned about environmental issues

Deadweight Loss of Monopoly

The consumer and producer surplus that is lost due to the monopolist charging a price in excess of marginal cost

Competitive Firm's Demand

The demand curve for a competitive firm's product is a horizontal line at the market price. This price is the competitive firm's marginal revenue

Perfectly Competitive Market

The interaction between many buyers and sellers that are "small" relative to the market; Each firm in the market produces a homogeneous (identical) product; Buyers and sellers have perfect information; No transaction costs; Free entry into and exit from the market & a single market price is determined by the interaction of demand and supply; firms earn zero economic profits in the long run

Firm's Short Run Supply Curve

The short-run supply curve for a perfectly competitive firm is its marginal cost curve above the minimum point on the 𝐴𝑉𝐶 curve

Competitive Output Rule

To maximize profits, a perfectly competitive firm produces the output at which price equals marginal cost in the range over which marginal cost is increasing P=MC(Q)

Short-Run Output Decision

To maximize short-run profits, a perfectly competitive firm should produce in the range of increasing marginal cost where 𝑃=𝑀𝐶, provided that 𝑃≥𝐴𝑉𝐶. If 𝑃<𝐴𝑉𝐶, the firm should shut down its plant to minimize it losses

Cost Complementaries

When marginal cost of producing one output decreases when the output of another good increases

Economies of Scope

When total cost of producing two products within the same firm is lower than when the products are produced by separate firms

Brand Myopic

manager or company that relies on the past laurels instead of focusing on emerging trends and preferences