Journaling of Chapter 17: Monopolistic Competition

Chapter 17 focused on monopolistic competition, a market structure in which many firms sell products that are similar but not identical. In order to be considered monopolistic competition, there must be many sellers, product differentiation, and free entry. Monopolistic competition shares some features of perfect competition and shares some features of monopolies. Like perfect competition, entry and exit will drive profits to zero economic profit in the long run. Like monopoly, monopolistic competition firms have a downward sloping demand curve. Monopolistically competitive firms produce an excess capacity because they produce below the efficient scale. They also charge prices that exceed their marginal cost for their products which is the markup over marginal cost. Monopolistic competition may be inefficient because it has a standard deadweight loss and because the number of firms is not ideal. The entry of new firms causes the product-variety externality and the business stealing externality. There is no easy way for public policy to solve these inefficiencies. Each firm has the incentive to advertise. Evidence suggests that advertising increases competition which reduces prices for consumers. Advertising correlates to the quality of the product. Brand names provide information and give firms an incentive to maintain their quality.

I would give this chapter a difficulty rating of 1 out of 3. The readers have already been introduced to perfect competition as well as monopoly so it was easier to grasp the concepts of monopolistically competition because it was basically different features that were picked from the two other extremes. 

Journaling of Chapter 16: Oligopoly

Chapter 16 discusses oligopoly. Readers have already been introduced to competition and monopoly. The market structure that lies between the two extremes, competition and monopoly, is known as imperfect competition. Imperfect competition includes industries that have competitors but not enough competition to be considered price takes. Imperfect competition can have two different types. The two different types are monopolistic competition and oligopoly. Oligopoly is a market structure in which only a few sellers offer similar or identical products. Due to this fact, oligopolistic firms are interdependent. In a competitive market, the decisions of one firms has no impact on other firms in the market because it’s so small in comparison to the entirety of the market that it’s negligible. However, in an oligopolistic firm, the decisions of one firm affect the other firms pricing and production decisions. A duopoly is an oligopoly that only contains two firms. Oligopolies should try to form a cartel, group of firms acting in unison, so that they can all behave as monopolists but the larger the oligopoly is, the more firms, the harder that becomes to achieve. Game theory is the study of how people behave in strategic situations. The readers are introduced to the prisoners’ dilemma. It illustrates why cooperation is difficult to maintain even if both sides are mutually beneficial. This relates to oligopoly because oligopolistic firms are better off cooperating with one another but they often don’t. Policymakers try to induce firms in an oligopoly market to compete rather than cooperate.  

I would give this chapter a difficulty rating of 2 out of 3. It’s easy to comprehend because we have already learned the two extremes and now we’re just looking at the concept that’s in between. However, this chapter introduced a lot of new concepts such as Nash equilibrium and the prisoners’ dilemma. Though confusing at times, overall, I was able to follow along.  

Article Review 5: Scott Adams' Secret of Success: Failure

     This article is very different from the past articles we have read but in a good way. I feel like I could apply a lot of the ideas that were brought up in the article in my everyday life. Scott Adams presented some tips to his readers on what not to do if you’re looking for success. The first tip is to know that no two situations are alike so be aware of successful people and their methods. The second and third tip is to forget about passion and forget about goals. Passion can merely stem from success. Success does not always arise from passion. Also, system-oriented people seem to be more successful than goal-oriented people because setting goals involves “the cycle of permanent presuccess failure.” (Adams). 

     Overall, Adam's purpose of writing this article is to tell his audience that they should see failure as a tool towards success and not as the final outcome. He then goes on to list out his own failures in the business world. I really liked how he was open about his road to success and didn’t try to hide his imperfections because it makes Adam seem more relatable. This allows the readers to have more hope in themselves because if one man fails and then succeeds, we can feel less ashamed of our own failures as well. Out of all the assigned article reviews, this has been my favorite article by far. It’s a nice change from the usual economic centered article because this one is more general and relatable. It definitely inspired me to look at my failures in a different light. It also helped me realize that though it may seem like I’m not succeeding when I fail, in some form, I am because it will be a part of what shapes my journey onto the way of success. That fact alone is really motivating.

                                                                                                                                                                 

Journaling of Chapter 15: Monopolies

Chapter 15 is about monopolies. Readers learn about the similarities and differences between monopolies and competitive firms. First of all, monopolists are price makers opposed to price takers. A monopoly is a firm that is the sole seller of a product without close substitutes. A monopoly is the only seller if there are barriers to entry. Sources of barriers to entry include monopoly resources, government regulation, and the production process. A monopoly has a downward sloping demand curve so if it wants to sell a greater quantity the price must lower. Thus, two effects of the sale of an additional unit is the output effect: quantity is higher, and the price effect: price is lower. Monopolies fail to maximize total economic well-being. The socially efficient quantity is found where the demand curve and the marginal-cost curve intersect. The monopolist produces less than the socially efficient quantity of output. The social cost of a monopoly is the dead weight loss generated when the monopolist produces a quantity of output below the efficient point. Price discrimination can only be practiced by firms that have market power such as monopolies. Price discrimination is the business practice of selling the same good at different prices depending on the customer’s willingness to pay. Since monopolies fail to allocate their resources efficiently, policymakers try to make monopolies more competitive, regulating monopolies behaviors, changing monopolies into public enterprises, or doing nothing at all.

I would give this chapter a difficulty rating of 1 out of 3. Monopolies seem to be the opposite of competitive firms because monopolies have control over the prices they charge. However, firms that have substantial monopoly power are rare. Since monopolies and competitive markets are kind of flipped and we have already learned about the latter, the concepts introduced in this chapter were easy to grasp. 

Journaling of Chapter 14: Firms in Competitive Markets

     Chapter 14 describes the behavior of competitive firms. Competitive firms are markets where the buyers and sellers are price takers because they hold no market power. Competitive firm’s average revenue and marginal revenue are equal to the price of the good because total revenue is proportional to the amount of output sold. All firms’ goals are to maximize profit. In order to do this, firms compare marginal revenue with marginal cost. Profit maximization can be determined with three rules. If marginal revenue exceeds marginal costs, output should be increased. If a marginal cost exceeds marginal revenue, output should be decreased. When they’re equal, it’s called profit-maximizing level of output. In these cases, the marginal cost curve serves as the competitive firms supply curve because the marginal cost curve determines how much the firm will supply at any price. Also, the competitive firm’s short run supply curve is the portion of its marginal-cost curve that lies above the average-variable-cost curve. The competitive firm’s long-run supply curve is the portion of its marginal-cost curve that lies above the average-total-cost curve. In the long run, a firm will exit the market if the revenue it would get from producing is less than its total costs. The short run market supply curve is upward sloping. The long run market supply curve is horizontal, meaning it is perfectly elastic.

     I would give this chapter a difficulty rating of 2 out of 3. I didn’t understand most of the graphs. There was just so many! However, the tables really helped with my comprehension. Overall, I learned that marginal analysis plays a huge part in supply decisions.