Ch.+7.3

Ch. 7.3 notes and questions # 1-4, 6
 *  Monopolistic competition- a market structure in which many companies sell products that are similar but not identical
 * 4 conditions of monopolistic competition- many firms, few artificial barriers to entry, slight control over price, different products
 * Differentiation-making a product different from other similar products
 * Non-price competition- a way to attract customers through style service or location, but not a lower price
 * Physical characteristics: location, service level, advertising image or status
 * When economists look at price, output, and profits under monopolistic competition they find the market looks very much as it would under perfect competition
 * prices under monopolistic competition will be higher than they would be in perfect competition, because firms have some power to raise prices
 * however, the number of firms and ease of entry prevent companies from raising prices as high as they would if they were a true monopoly
 * the law of demand says that output and price are negatively related. as one rises the other falls
 * because monopolistically competitive firms sell their products at higher prices than do perfectly competitive firms, but at lower prices than a monopoly, total output under monopolistic competition falls somewhere between that of monopoly and that of perfect competition
 * just like perfectly competitive firms, monopolistically competitive firms earn just enough to cover all of their costs, including salaries for their workers
 * If a monopolistically competitive firms started to earn profits well above its costs, two market rents would work to take those profits away
 * first, intense competition would encourage rivals to think of new ways to differentiate their products, if monopolistic company hires a sports start to advertise a sports drink, a rival company may hire a singer to advertise their product
 * second, new firms will enter the market slightly different products that cost a lot less than the market leaders
 * Oligopoly- a market structure in which a few large firms dominate a market
 * price war- a serious of competitive price cuts that lowers the market price below the cost of production
 * collusion- an agreement among firms to divide the market, set prices, or limit production
 * price fixing- an agreement among firms to charge one price for the same good
 * cartel- a formal organization of producers that agree to coordinate prices production

6. a. refrigerators - monopolistic competition b. Video game systems- oligopoly c. gourmet ice cream- monopolistic competition d. sunscreen- monopolistic competition e. cable sports channel- oligopoly
 * 1) 4 conditions of monopolistic competition- many firms, few artificial barriers to entry, slight control over price, different products
 * 2) economists determine whether a market is an oligopoly if the four largest firms produce at least 70-80 percent of the output
 * 3) Customer focus, quality of service, extensive distribution, or any other form of competition besides pricing
 * 4) Price fixing and collusion help producers because more of their product is being sold at a higher price