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Starbucks: Growth through Product Differentiation. Learning Objectives. The coffeehouse market is monopolistically competitive rather than perfectly competitive. Monopolistic Competition: The Competitive Model in a More Realistic Setting.

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Starbucks: Growth through Product Differentiation

Learning Objectives

The coffeehouse market is monopolistically competitive rather than perfectly competitive.

slide3

Monopolistic Competition: The Competitive Modelin a More Realistic Setting

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

slide4

Learning Objective 12.1

Demand and Marginal Revenue for a Firmin a Monopolistically Competitive Market

The Demand Curve for a Monopolistically Competitive Firm

FIGURE 12-1

The Downward-Sloping Demand for Caffè Lattes at a Starbucks

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Learning Objective 12.1

Demand and Marginal Revenue for a Firmin a Monopolistically Competitive Market

Marginal Revenue for a Firm with a Downward-Sloping Demand Curve

Table 12-1

Demand and Marginal Revenue at a Starbucks

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Learning Objective 12.1

Demand and Marginal Revenue for a Firmin a Monopolistically Competitive Market

Marginal Revenue for a Firm with a Downward-Sloping Demand Curve

FIGURE 12-2

How a Price Cut Affects a Firm’s Revenue

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Learning Objective 12.1

Demand and Marginal Revenue for a Firmin a Monopolistically Competitive Market

Marginal Revenue for a Firm with a Downward-Sloping Demand Curve

FIGURE 12-3

The Demand and Marginal Revenue Curves for a Monopolistically Competitive Firm

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Learning Objective 12.2

How a Monopolistically CompetitiveFirm Maximizes Profits in the Short Run

FIGURE 12-4

Maximizing Profit in aMonopolistically Competitive Market

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Learning Objective 12.2

12-2

Solved Problem

How Not to Maximize Profits at a Publishing Company

If you were a manager at a publishing firm, how would you determine whether producing one more copy of a book will increase your profits?

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Learning Objective 12.3

What Happens to Profits in the Long Run?

How Does the Entry of New Firms Affect the Profits of Existing Firms?

FIGURE 12-5

How Entry of New Firms Eliminates Profits

Don’t Let This Happen to YOU!Don’t Confuse Zero Economic Profit with Zero Accounting Profit

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Learning Objective 12.3

What Happens to Profits in the Long Run?

How Does the Entry of New Firms Affect the Profits of Existing Firms?

Table 12-2

The Short Run and the Long Run for a Monopolistically Competitive Firm

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Learning Objective 12.3

MakingtheConnection

  • The Rise and Fall of Apple’s Macintosh Computer

Macintosh lost its differentiation, but still has a loyal— if relatively small—following.

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Learning Objective 12.3

12-3

Solved Problem

The Short Run and the Long Run for the Macintosh

slide14

Learning Objective 12.3

What Happens to Profits in the Long Run?

Is Zero Economic Profit Inevitable in the Long Run?

A firm’s profits will be eliminated in the long run onlyif a firmstands still and fails to find new ways of differentiating its product or fails to find new ways of lowering the cost of producing its product.

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Learning Objective 12.3

MakingtheConnection

  • Staying One Step Ahead of the Competition: Eugène Schueller and L’Oréal

Unlike many monopolistically competitive firms, L’Oréal has earned economic profits for a very long time.

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Learning Objective 12.4

Comparing Perfect Competition and Monopolistic Competition

Monopolistic competition and perfect competition share the characteristic that in long-run equilibrium, firms earn zero economic profits.

However, there are two important differences between long-run equilibrium in the two markets:

• Monopolistically competitive firms charge a price greater than marginal cost.

• Monopolistically competitive firms do not produce at minimum average total cost.

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Learning Objective 12.4

Comparing Perfect Competition and Monopolistic Competition

Excess Capacity under Monopolistic Competition

FIGURE 12-6

Comparing Long-Run Equilibrium under Perfect Competition and Monopolistic Competition

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Learning Objective 12.4

Comparing Perfect Competition and Monopolistic Competition

Is Monopolistic Competition Inefficient?

Economists have debated whether monopolistically competitive markets being neither productively nor allocatively efficient results in a significant loss of well-being to society in these markets compared with perfectly competitive markets.

How Consumers Benefit from Monopolistic Competition

Consumers benefit from being able to purchase a product that is differentiated and more closely suited to their tastes.

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Learning Objective 12.4

MakingtheConnection

  • Abercrombie & Fitch: Can the Product Be Too Differentiated?

Did Abercrombie and Fitch narrow its target market too much?

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Learning Objective 12.5

How Marketing Differentiates Products

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

Brand Management

Brand management The actions of a firm intended to maintain the differentiation of a product over time.

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Learning Objective 12.5

How Marketing Differentiates Products

Advertising

If the increase in revenue that results from the advertising is greater than the increase in costs, the firm’s profits will rise.

Defending a Brand Name

A firm can apply for a trademark, which grants legal protection against other firms using its product’s name.

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Learning Objective 12.6

What Makes a Firm Successful?

FIGURE 12-7

What Makes a Firm Successful?

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Learning Objective 12.6

MakingtheConnection

  • Is Being the First Firm in the Market a Key to Success?

Although not first to market, Bic ultimately was more successful than the firm that pioneered ballpoint pens.

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Can Dunkin’ Donuts Really Compete with Starbucks?

LOOK

An Inside

Brewing Battle: Dunkin’ Donuts Tries to Go Upscale, but Not too Far

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K e y T e r m s

Brand management

Marketing

Monopolistic competition