Economics Internal Assessment Essay
Chapter 17 Internal Assessment http://www.nytimes.com/2010/04/05/business/media/05screen.html?scp=10&sq=movies&st=Search Branding Comes Early in Filmmaking Process
By STEPHANIE CLIFFORD
Monopolistic Competition is a market structure in which many firms sell products that are similar but not identical. It is a mixture between monopoly, which is a firm that is the sole seller of a product without close substitutes, and perfect competition, which is a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. The movie industry is monopolistically competitive as there are many firms competing for the same group of customers, there is product …show more content…
In order to maximize profit, marginal revenue must equal marginal cost. If you look above, you can see that at this point on the graph (MR=MC) price exceeds marginal cost. This is because price equals average total cost, and the downward sloping demand curve makes it so that at the profit-maximizing quantity of MR=MC, price (atc) is greater than marginal cost.
For example, the marginal cost to the company of lodging for the crew is taken care of through Hilton, yet there are other expenses that the company must purchase as well so that the average total cost is equal to the price and zero profit equilibrium occurs.
“The cost of movies is going up, and that really drives almost everything,” said Jack Epps. In monopolistic competition, the long run always has zero profit equilibrium. So, if one firm kept the price of movies low, then their price would be below average total cost and they would have losses. In order to have a profit, price must be above average total cost, yet in monopolistically competitive firms price equals average total cost so this is not possible in the long run. Unlike monopolies, monopolistically competitive firms do not have the ability to price discriminate, which is the business practice of