Monopolistic Competition

.title[
# Monopolistic Competition
]
.subtitle[
## Microeconomics I
]
.author[
### Lyuben Ivanov, PhD
]
.institute[
### Sofia University St. Kliment Ohridski
]
.date[
### Fall Term 2025/2026
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Introduction</strong>
]
<hr>

---

# Introduction

You have already learned:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">how in a competitive market the growing demand does not result in growing revenues and abnormal profits for an individual firm in the long run</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">how a firm with market power can sustain abnormal profits in both the long run and the short run as long as it is protected by barriers to entry</td>
  </tr>
</table>

---

Now YOU are going to learn about the profitability and output decisions in industries where firms have some market power but are not protected by any significant barriers to entry.

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Between Monopoly And Perfect<br>&nbsp;Competition</strong>
]
<hr>

---

# Monopolistic Competition

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>monopolistic <br>competition</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">a market structure in which many 
firms sell products that are similar but not identical</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> dental practices, lawyer 
services, books, computer games, restaurants, piano lessons, cookies, clothing </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> the licensing/educational requirements for lawyers and dentists may appear as barriers to entry but the huge number of practices in these industries imply that these requirements hardly deter new firms from entering the market and competing with existing firms in the long run if abnormal profits are present </td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_821ab071" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>Which of the following conditions does NOT describe a firm in a monopolistically competitive market?</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceA1" value="A">
        <label class="form-check-label" for="choiceA1">
            It has the freedom to enter or exit in the long run.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceB1" value="B">
        <label class="form-check-label" for="choiceB1">
            It maximizes profit both in the short run and in the long run.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceC1" value="C">
        <label class="form-check-label" for="choiceC1">
            It takes its price as given by market conditions.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice1" id="choiceD1" value="D">
        <label class="form-check-label" for="choiceD1">
            It sells a product different from its competitors.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result1', 'choice1')">Submit</button>
    <div class="result" id="result1"></div>
  </div>

---

# Market Structures Overview

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_a5f032e1" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>Which of the following markets best fits the definition of monopolistic competition?</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceA2" value="A">
        <label class="form-check-label" for="choiceA2">
            haircuts
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceB2" value="B">
        <label class="form-check-label" for="choiceB2">
            tap water
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceC2" value="C">
        <label class="form-check-label" for="choiceC2">
            corn
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice2" id="choiceD2" value="D">
        <label class="form-check-label" for="choiceD2">
            crude oil
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('A', 'result2', 'choice2')">Submit</button>
    <div class="result" id="result2"></div>
  </div>

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Competition With Differentiated<br>&nbsp;Products</strong>
]
<hr>

---

# The Short-Run Perspective

<br>

.panelset.sideways.right[
.panel[.panel-name[Favorable Scenario]
<img src="profitable-monopoly.png" style="width: 100%;">
]
.panel[.panel-name[Unfavorable Scenario]
<img src="unprofitable-monopoly.png" style="width: 100%;">
]
.panel[.panel-name[Most Likely Scenario]
<img src="normal-profit.png" style="width: 100%;">
]
]

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_d3d3d7c1" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>New firms will enter a monopolistically competitive market if</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceA4" value="A">
        <label class="form-check-label" for="choiceA4">
            marginal revenue is greater than marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceB4" value="B">
        <label class="form-check-label" for="choiceB4">
            marginal revenue is greater than average total cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceC4" value="C">
        <label class="form-check-label" for="choiceC4">
            price is greater than marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice4" id="choiceD4" value="D">
        <label class="form-check-label" for="choiceD4">
            price is greater than average total cost.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('D', 'result4', 'choice4')">Submit</button>
    <div class="result" id="result4"></div>
  </div>

---

# The Long-Run Perspective

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_4d284389" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>What is true of a monopolistically competitive market in long-run equilibrium?</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceA5" value="A">
        <label class="form-check-label" for="choiceA5">
            Price is greater than marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceB5" value="B">
        <label class="form-check-label" for="choiceB5">
            Price is equal to marginal revenue.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceC5" value="C">
        <label class="form-check-label" for="choiceC5">
            Firms make positive economic profits.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice5" id="choiceD5" value="D">
        <label class="form-check-label" for="choiceD5">
            Firms produce at the minimum of average total cost.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('A', 'result5', 'choice5')">Submit</button>
    <div class="result" id="result5"></div>
  </div>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_a36f32c1" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>The 'business-stealing' externality associated with the entry of new firms into monopolistically competitive market refers to the:</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice10" id="choiceA10" value="A">
        <label class="form-check-label" for="choiceA10">
            gain in consumer surplus from the introduction of a new product.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice10" id="choiceB10" value="B">
        <label class="form-check-label" for="choiceB10">
            increase in marginal costs for existing firms.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice10" id="choiceC10" value="C">
        <label class="form-check-label" for="choiceC10">
            loss of customers and profit experienced by existing firms when a new competitor enters.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice10" id="choiceD10" value="D">
        <label class="form-check-label" for="choiceD10">
            pollution created by the increased variety of production processes.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result10', 'choice10')">Submit</button>
    <div class="result" id="result10"></div>
  </div>

---

# Key Characteristics

The application of the profit-maximization model to the market structure of 
monopolistic competition reveals a number of key characteristics of this market 
structure:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">as with monopoly, in the short run price may 
exceed marginal cost (P > MC) and average total cost (P > ATC), resulting in 
abnormal profits</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">as with perfect competition, in the long run the price per unit equals the  production cost per unit (P=ATC), resulting in the inability of the typical monopolistically competitive firm to earn abnormal profit</td>
  </tr>
</table>

---

# Key Characteristics

The application of the profit-maximization model to the market structure of 
monopolistic competition reveals a number of key characteristics of this market 
structure:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">as with monopoly, in both the short run and 
the long run, the profit-maximizing firm would produce below the <i>efficient scale</i> quantity where the cost of production per unit (ATC) is at its minimum, resulting in <i>excess capacity</i></td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">as with monopoly, the firm charges a <b>mark-up</b> 
above the marginal cost of production (MC), necessarily increasing its profit if 
it can somehow sell an extra unit at its posted price</td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_65191bba" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>A monopolistically competitive firm will increase its production if</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceA3" value="A">
        <label class="form-check-label" for="choiceA3">
            marginal revenue is greater than marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceB3" value="B">
        <label class="form-check-label" for="choiceB3">
            marginal revenue is greater than average total cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceC3" value="C">
        <label class="form-check-label" for="choiceC3">
            price is greater than marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice3" id="choiceD3" value="D">
        <label class="form-check-label" for="choiceD3">
            price is greater than average total cost.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('A', 'result3', 'choice3')">Submit</button>
    <div class="result" id="result3"></div>
  </div>

---

# Evaluation Of Monopolistic Competition

The review of the key characteristics of monopolistic competition results in the 
following conclusions about the market outcome of profit-maximizing firms in this 
market structure:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">since, at equilibrium, price 
(marginal benefit expressed in dollars) exceeds marginal cost (P > MC), there 
are units of the product that, if produced, would bring more benefit to society 
than the cost of resources employed, but these units are not produced, resulting 
in welfare loss for the particular period of time</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">over the long run, being in a monopolistic 
competition is much less profitable than being in a monopoly market &mdash;the 
strategies to differentiate its product and attract more customers are often 
self-defeating because costs rise too</td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_a76a59cb" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>In the long run, a monopolistically competitive firm produces a quantity that is ________ the efficient scale, a phenomenon known as ________.</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice9" id="choiceA9" value="A">
        <label class="form-check-label" for="choiceA9">
            equal to; perfect competition
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice9" id="choiceB9" value="B">
        <label class="form-check-label" for="choiceB9">
            less than; excess capacity
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice9" id="choiceC9" value="C">
        <label class="form-check-label" for="choiceC9">
            greater than; economies of scale
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice9" id="choiceD9" value="D">
        <label class="form-check-label" for="choiceD9">
            less than; markup pricing
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result9', 'choice9')">Submit</button>
    <div class="result" id="result9"></div>
  </div>

---

# Evaluation Of Monopolistic Competition

The entry of new firms which introduce differentiated products to the market 
results in the following conclusions about the market outcome of 
profit-maximizing firms in this market structure:

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_7b5868b6" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>Monopolistic competition is considered inefficient compared to perfect competition primarily because:</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice11" id="choiceA11" value="A">
        <label class="form-check-label" for="choiceA11">
            firms produce at the minimum of their average total cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice11" id="choiceB11" value="B">
        <label class="form-check-label" for="choiceB11">
            price is equal to marginal cost, leading to zero profit.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice11" id="choiceC11" value="C">
        <label class="form-check-label" for="choiceC11">
            there is a deadweight loss caused by the markup of price over marginal cost.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice11" id="choiceD11" value="D">
        <label class="form-check-label" for="choiceD11">
            the number of firms in the market is always socially optimal.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result11', 'choice11')">Submit</button>
    <div class="result" id="result11"></div>
  </div>

---

# Regulation

The fact that for any given period the monopolistically competitive firm does NOT 
maximize the social welfare may imply that the governments should regulate these 
firms to improve social welfare (as with monopolies). However, this is not the 
case because:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">regulating so many firms, industries and 
products would cause enormous burden on the government, hence wasting scarce 
resources (incurring opportunity costs)</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">forcing monopolistically competitive firms to 
produce more (necessarily dropping their prices), would likely result in losses 
for ALL firms that would otherwise make normal profit, forcing them to leave the 
market and resulting in less product variety and less employment (in SMEs)</td>
  </tr>
</table>

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Product Differentiation Through<br>&nbsp;Advertising And Branding</strong>
]
<hr>

---

# The Debate Over Advertising

There are two important (and somewhat related) questions with regard to 
advertising in a market economy:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-question"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">Is advertising causing a waste of society's scarce resources?</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-question"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">Or does advertising serve a positive social purpose?</td>
  </tr>
</table>

---

# Critique Of Advertising

The critics of advertising usually provide the following arguments against diverting 
scarce resources to advertising:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-minus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">advertising manipulates people into buying stuff they 
don't really need or want (related to the idea of <b>consumerism<b>);</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-minus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">advertising prevents competition on prices by focusing 
consumers' attention to other, less important or tangible, features of the product.</td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_15c784dd" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>If advertising makes consumers more loyal to particular brands, it could ... ... the elasticity of demand and ... ... the markup of price over marginal cost.</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceA6" value="A">
        <label class="form-check-label" for="choiceA6">
            increase; increase
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceB6" value="B">
        <label class="form-check-label" for="choiceB6">
            increase; decrease
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceC6" value="C">
        <label class="form-check-label" for="choiceC6">
            decrease; increase
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice6" id="choiceD6" value="D">
        <label class="form-check-label" for="choiceD6">
            decrease; decrease
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('C', 'result6', 'choice6')">Submit</button>
    <div class="result" id="result6"></div>
  </div>

---

---

---

# Defense Of Advertising

The proponents of advertising usually provide the following arguments for diverting 
scarce resources to advertising:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">advertising provides to consumers information about 
pricing, product quality, retail locations, new products, etc.;</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">advertising fosters competition by allowing new 
entrants to attract customers from established firms by letting consumers know 
that a better and/or cheaper product is available;</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">advertising serves as a signal of quality, decreasing 
the problems resulting from asymmetric information.</td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_6d3a498a" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>Advertising can be a signal of quality</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice8" id="choiceA8" value="A">
        <label class="form-check-label" for="choiceA8">
            if advertising is freely available to all firms.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice8" id="choiceB8" value="B">
        <label class="form-check-label" for="choiceB8">
            if the benefit of attracting customers is greater for firms with better products.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice8" id="choiceC8" value="C">
        <label class="form-check-label" for="choiceC8">
            only if consumers are irrationally attracted to products they see advertised.
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice8" id="choiceD8" value="D">
        <label class="form-check-label" for="choiceD8">
            only if the content of the ads contains credible information about the products.
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result8', 'choice8')">Submit</button>
    <div class="result" id="result8"></div>
  </div>

---

---

# Empirical Research on Advertising

Economists have studied advertising empirically to see which side of the debate 
is closer to the truth. Two important empirical studies have demonstrated that:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">in the 1960s in the United States, in states where 
advertising by optometrists was allowed, on average, price of a pair of eyeglasses 
was more than 20% cheaper compared to states where advertising by optometrists 
was  prohibited;</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">in the 1990s in the United States, the removal of 
restrictions on advertising alcohol in Rhode Island decreased the price of some 
liquors by more than 20% compared to prices in the neighbouring Massachusets.</td>
  </tr>
</table>

---

# Play Time

<countdown-timer class="countdown inline no-controls" id="timer_5625cd3b" minutes="1" seconds="0" update-every="1" play-sound="true" tabindex="0" style="top:0;left:90%;--countdown-margin:5px;--countdown-font-size:1em;--countdown-border-width:0;--countdown-color-background:#23373B;--countdown-color-text:#FAFAFA;--countdown-color-running-background:#23373B;--countdown-color-finished-background:#23373B;--countdown-color-running-text:#BBCACEFF;--countdown-color-finished-text:#BBCACEFF;"></countdown-timer>

<br>

<div class="container">
    <div class="question">
        <p>If advertising makes consumers more aware of alternative products, it could ... ... the elasticity of demand and ... ... the markup of price over marginal cost.</p>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceA7" value="A">
        <label class="form-check-label" for="choiceA7">
            increase; increase
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceB7" value="B">
        <label class="form-check-label" for="choiceB7">
            increase; decrease
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceC7" value="C">
        <label class="form-check-label" for="choiceC7">
            decrease; increase
        </label>
    </div>
    <div class="form-check">
        <input class="form-check-input" type="radio" name="choice7" id="choiceD7" value="D">
        <label class="form-check-label" for="choiceD7">
            decrease; decrease
        </label>
    </div>
    <br>
    <button class="btn btn-custom mt-3" onclick="checkAnswer('B', 'result7', 'choice7')">Submit</button>
    <div class="result" id="result7"></div>
  </div>

---

---

# The Debate Over Brand Names

Since brand names are closely related to advertising, the arguments in the debate 
for and against advertising can be extended for brands as well:

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-minus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">critics of brand names argue that products with brand 
names are no better than similar generic products and any spending on brand 
building is either waste of money or a way to mislead the consumer to overpay 
for a product that is not superior;</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-plus-circle"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">proponents of brand names argue that branding decreases 
the problems of asymmetric information by serving as a <b>signal</b> of quality 
for consumers and an <b>incentive</b> to maintain quality for firms.</td>
  </tr>
</table>

---

# Summary

---

# Questions?

<br>

</body>
</html>

---

# Thank You!

<br>

</body>
</html>