Chapter 16

Finally, we are beginning to define economics in less broad strokes and are getting into details and the nitty gritty. This chapter delves into another type of market, the monopolistically competitive market. Monopolistically competitive markets are defined by imperfect competition, where firms have some degree of control over their prices, and had some degree of market power, but not so much so that the firms can be defined as a monopoly. This chapter also brings up the concept of an oligopoly, which is a market with only a few sellers, each offering a product similar or identical to the products offered by other sellers. Some examples of oligopolies in the market include breakfast cereal, aircraft manufacturing, electric lamp bulbs, household laundry equipment and cigarettes. The problem I have with all of this is that everything is very loosely defined and up for debate. "Few firms" from "many firms" is very hard to distinguish between. A monopolistically competitive firm works in the same way a monopoly does, producing where marginal revenue equals marginal cost, and then using the demand curve to find what to price their good at. In the long run, monopolistically competitive firms have to reach an economic profit of zero for the same reasons a perfectly competitive firms must. The maximum profit is zero only if the ATC and the demand curves touch each other without crossing. This touching is called "tangency". Overall, this chapter was pretty easy to read, I would give it a 1:4 in terms of difficulty.