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