Econ Ch. 13

How does the product differentiation of monopolistically competitive firms may benefit consumers?

-Product differentiation can locate firms more conveniently to consumers -offer versions of a product or service that better fits their needs.

A critical aspect of marketing is creating a brand name for your product. A successful brand name can...

-help to maintain product differentiation -delay the ability of other firms to compete away your products

Marketing

All the activities necessary for a firm to sell a product to a consumer

One way in which monopolistically competitive markets and perfectly competitive markets differ is that in​ long-run equilibrium, monopolistically competitive firms ...

Charge a price greater than marginal cost

What trade-offs do consumers face when buying a product from a monopolistically competitive firm?

Consumers pay a price greater than marginal cost but also have a wider array of choices.

One possible effect of advertising is to...

Increase profits by shifting the demand curve for the product to the right

Monopolistic Competition has _________ barriers of entry

Low

Though monopolistically competitive firms are neither productively nor allocatively efficient, they are not necessarily bad for consumers because..

Many consumers are willing to accept a higher price for a differentiated product

Allocative efficiency

Refers to producing all goods up to the point where marginal benefit to consumers is just equal to the marginal cost to firms marginal benefit of consumers = marginal cost of firms

Brand Management

The action of a firm intended to maintain the differentiation of a product over time.

Owners and managers control some of the factors that make a firm successful such as

The firm's ability to produce its product at a lower average cost than competitors

Output effect

When Chipotle reduces the price of a burrito, it sells 1 more burrito and its revenue increases because of the extra sale.

Profit-maximizing quantity in a monopolistically competitive market occurs..

Where MC = MR

Monopolistic Competition

a market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.

First-mover advantage

being the first to sell a particular good

Value

created by a firm's ability to differentiate its product and to produce it at a lower average cost than competing firms

The ATC curve is never below the...

demand curve

The products that monopolistically competitive sell are...

differentiated from one another in some way

The monopolistically competitive firm sells a __________ product and faces a __________ demand curve.

differentiated, downward-sloping

Legally enforcing trademarks can be...

difficult

In the long-run, demand will continue to..

fall to zero economic profit unless the firm is able to do something about it.

By advertising efficiently, monopolistically competitive firms can...

increase demand for their products

A monopolistically competitive firm in a long-run equilibrium produces where:

its demand curve is tangent to its average total cost curve

Monopolistic competition results in....

neither productive or allocative efficiency

Are monopolistically competitive firms allocatively efficient? Productively efficient?

no no

Profit maximization requires...

producing until the marginal revenue from the last unit is just equal to the marginal cost: MC = MR.

In the short run, a monopolistically competitive firm might make a...

profit or a loss

Productive efficiency

refers to producing items at the lowest possible cost

A firm may opt to pay millions of dollars for celebrity endorsements in order to:

signal to consumers that the advertised product is appealing and likely to be popular