CT12.3 Some professions, like hair cutting or hair beaiding, are birly dose to perfectly ce seensing requirements that deter some competitors from entering the profession, wh cepes from this chapter to explain your answer. Why might the govern 13 Monopolistic Competition: The Competitive Model in a More Realistic Setting Will Panera's "Pure Food" Advantage Last? Few industries are as competitive as the restaurant indus- try. In most downtowns, it's not unusual to see several res or differentiate, their food from other restaurants' food. L Kane and Ron Shaich founded the firm that became P Bread in 1981. Although they originally concentra selling baked goods and breakfast foods, by the late 1990s, the firm had expanded to serve a variety of sandwiches, pups, and salads throughout the day. Panera, like Chipotle Mexican Grill es Last-casual restaurants," which prepare fresh food quickly but do not offer table service. These get The market Panera competes in shares two of these characteristics There are many fast-casual restaurants, rants serve food that many consumers consider healthier and the barriers to entering the market are very low because it is made with higher-quality ingredients than the food at traditional fast- But the products that Panera and its competitors sell eachtiffants, such as Taco Bell are differentiated rather than identical. So, the me and Mcdonald's. In 2017, Ron Shaich, now sene Such, now serving as chair mera's board of directors, im is monopolistically competitive rather than perfectly subced that its 2,000 res- ompetitive. tarants had completed a two-year process of converting ng only "clean food"-food containing no artificial Can Panera continue to succeed? The process of con preservatives, sweeteners, or other additives. He pointed out in food" required a substantial investment, bu has other fast-canal restaurants and fast-food restaurants To consumers actually care enough about food ingredients do, will Panera's were unable to make this claim. competitors begin serving "clean food" as well. redking When we discussed the situation of firms in perfectly the advantages shaich hoped to pain competitive markets in Chapter 12, we saw that these mar- monopolistically competitive firms are unable to earn an keis share three key characteristics economic profit in the long run. 2. All firms sell identical products. Sources Jule Jargon, "What Panera Had to Change to Make its Mars . There are no barriers to new firms entering the industry. March 31,2017; and "The No-No List" panerabread.car, March 14, 2017. Chapter Outline & Learning Objectives Demand and Marginal Revenue for a Firm in a Monopol ically Competitive Market, page 452 Explain why a monopolisticaly competitive film has d ward-doping demand and marginal revenue curves 13.2 How a Monopolistically Competitive Firm Maximizes Profit in the Short Run, page .54 plan how a monopolisicaly competitve firm maximizes profit in the short run What Happens to Profits in the Long Run? page 457 Andiyzo the situation of a monopolistically competitive firm in the lang un. 134 Comparing Monopolistic Competition and Perfect Competition, page 452 Compare the efficiency of monopolitic competition and perfect competition. 13.5 How Marketing Differentiates Products, pope 486 afine marketing and explain how firms use it to differentione their products. What Makes a Firm Successful? page 486 Identity the key factors that determine a firm's success Economics in Your Life & Career Can You Operate a Successful Restaurant? After you graduate, to realize your dream of decisions you make will distinguish your restaurant from opening an Italian restaurant. You have many deckions to make in operating your restaurant competitors. What's likely to happen in the restaurant market in your hometown after you open your restau. style, " with sturdy but inexpensive furniture, or will it be low successful are you likely to be? Try to ansever more elegant, with nice furniture, tablecloths, and can- the these questions as you read this chapter. You can check dies? Will you offer a full mers or concentrate on pasta your answers against those we provide on page of$ at dishes made with your grandmother's secret sauce? The the end of this chapter. 461 452 CHAPTER 13 Monopolist Competition: The we Model In a More Realistic Setting any markets in the U.S. economy are similar to the restaurant market: They have many buyers and sellers, and the barriers to entry are low, but the ed for sale are differentiated rather than identical Examples of these markets include coffee houses, movie theaters, supermar kets, and furniture stores. In fact, the majority of the firms you buy from are competing in Monopolistic competition A monopolistically competitive markets. to entry are low and many firma We have seen how perfect competition benefits consumers and results in economic effi- forsome by selling similar. but not ciency. Will these same desirable outcomes abo hold for monopolistically competitive min dentical, products. kets? This question is important Demand and Marginal Revenue for a Firm in a Monopolistically Competitive Market LEARNING OBJECTIVE: Explain why a monopolistically competitive firm has downward sloping demand and marginal revenue curves. if the Panera restaurant located a mile from where you live raises the price of a tur- key sandwich from $7.09 to dwich from $7.00 to $7.50, it will lose same, bu customers will switch to b their sandwiches at amother restaurant, but other cus- comers will be willing to pay the higher price be a variety of reasons: This restaurant ll sell no wheat if he raises his price and who. therefore, faces a horizontal demand curve. The Demand Curve for a Monopolistically Competitive Firm Figure 13.1 shows how a change in price affects the quantity of turkey sandwiches Panera sells. The increase in the price from $7 00 to $7.50 decreases the ordering wiches sold from 3000 per week to 2.400 per week. Mylab Economics Concept Ched Marginal Revenue for a Firm with a Downward-Sloping Demand Curve For a firm in a perfectly competitive market, the demand curve and the marginal rev- enut curve are the same free Cha 4. A perfectly competitive firm faces a horizontal demand curve and does not have to cut the price to sell a larger quan- city. A monopolistically competitive firm, however, must cut the price to sell more, so is marginal revenue curve will slope downward and will be below its demand curve The data in Table 13.1 illustrate this assume that your local Panera restaurant is very small and sells at most 11 turkey MyLab Economics Amranson Figure 13.1 The Downward-Sloping Demand ay Sandwiches at lose some. but not all of is cescorn. arr. In thi cam, making the price from STied to so-to produces the quastay of Towarwand sloping demand curve. 2400 3,080