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    Monopolistic competition is a market structure with many small firms that produce differentiated products with easy entry and exit. It is characterized by firms having some control over prices in the short run due to product differentiation but facing a downward sloping demand curve in the long run as consumers substitute to other similar products. Advertising has both benefits like increasing sales and competition, and costs such as raising prices and creating entry barriers for firms.

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    Economics for those who need

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    chapter 8

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    Monopolistic competition is a market structure with many small firms that produce differentiated products with easy entry and exit. It is characterized by firms having some control over prices in the short run due to product differentiation but facing a downward sloping demand curve in the long run as consumers substitute to other similar products. Advertising has both benefits like increasing sales and competition, and costs such as raising prices and creating entry barriers for firms.

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    5 views1 page

    Monopolistic Competition: Arguments For Advertising

    Uploaded by

    allyzza leuterio
    Monopolistic competition is a market structure with many small firms that produce differentiated products with easy entry and exit. It is characterized by firms having some control over prices in the short run due to product differentiation but facing a downward sloping demand curve in the long run as consumers substitute to other similar products. Advertising has both benefits like increasing sales and competition, and costs such as raising prices and creating entry barriers for firms.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 1

    Chapter 8: Monopolistic Competition

    Monopolistic Competition is a type of market structure characterized by:


    A. Many Small Firms
    B. Differentiated Product
    C. Easy Entry and Exit

    Demand and Supply Curves for Hair Cut

    P S1
    150 S2
    120
    D

    100 150
    Hair Cut per Week
    Arguments for Advertising
    Some of the Argument in favour of advertising are the following:
    1. Advertising is informative.
    2. Advertising increases sales and permits economies of scale.
    3. Advertising increases sale and contributes to economic growth.
    4. Advertising supports the media.
    5. Advertising increases competition and lower prices.

    Some of the Arguments against advertising are the following:


    1. Advertising is not informative but competitive.
    2. The economies of scale are illusory.
    3. Advertising raises the cost curve.
    4. Advertisers may use their influence to bias the media.
    5. Advertising is used as an entry barrier.
    6. Advertising is not a productive activity.

    Monopolistic Competition Demand Curve


    Demand and Supply Curves for Hair Cut

    P
    Demand curve facing a perfectly competitive market

    Demand curve facing a perfectly monopolistically


    competitive market

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