Chapter 15 Reflection Assignment

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Jan 9, 2024

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Steve Wainaina Professor Das Microeconomics 11/5/2023 Question 1: (3 points) The history of Raisin Bran, as discussed in the podcast, provides a lesson in the evolution of market competition, aligning with topics covered in Chapter 15. Initially, Skinner held a monopoly on the term "Raisin Bran" and their cereal product, but this changed in 1942 when both Kellogg and General Foods began selling bran flake cereals with raisins, using the same name. Skinner's attempt to protect their trademark ultimately failed in court for two main reasons. First, "raisin bran" was considered a descriptive term for the product, much like "raisin pie," and therefore couldn't be exclusively claimed as a trademark. Second, both Kellogg and General Foods prominently displayed their brand names on their cereal boxes, ensuring that consumers wouldn't confuse their products with Skinner's. This case demonstrates how market dynamics can shift from a monopoly, where one company has exclusive control, to monopolistic competition, where multiple brands offer slightly distinctive versions of a similar product. In terms of economic concepts discussed in Chapter 15, this transition from a monopoly to monopolistic competition highlights the significance of branding and product differentiation in the cereal market. The case underscores the role of trademarks and how they can be challenged based on the descriptiveness of a product's name. Furthermore, pricing and competition in monopolistic competition are influenced by product distinctions and consumer preferences. As a result, consumers can choose from various brands of Raisin Bran, each offering slightly different features or variations, creating competition and diversity in the market. This shift in market structure has implications for pricing strategies and the importance of branding and product differentiation in capturing consumer attention and loyalty. Question 2 (2 point) A similar example can be seen in the personal computer (PC) industry. Back in the early days of personal computing, IBM enjoyed a near-monopoly

with its IBM-compatible PCs. This dominance was due to IBM setting industry standards, which limited competition. However, with time, various companies like Dell, HP, and Acer began producing their own PCs with differing specifications, designs, and price points, breaking IBM's monopoly. This transition to monopolistic competition was driven by a combination of factors, including evolving technology, a wider range of consumer preferences, and a more open and competitive market. As a result, consumers now have numerous options to choose from, reflecting the shift from a monopoly to monopolistic competition in the PC industry. Key Terms 1. Perfect Competition - many firms, firms sell identical products, no barriers to entry to new firms entering the industry. 2. Monopolistic Competition - many firms, products are not identical to their competitor's, no barriers to entry to new firms entering the industry. 3. Downward Sloping Demand Curve - Raises price, but some not all will switch and buy the product elsewhere. 4. Price Cut - Reduces price of Product and sell more of the product. 5. Output Effect - Revenue increase because of extra sale. 6. Profit Maximization - Producing until the marginal revenue from last units is just equal to the marginal cost. ex. MC=MR 7. Long run equilibrium - Situation which the entry and exit of firm has resulted in the typical firm breaking even. ex. monopolistically competitive firm pricing at P=ATC and making only normal profit. 8. Allocative Efficiency - Producing all goods up to the point where the marginal benefit to consumers is just equal to the marginal cost to firms. ex. a society with a younger population has a preference for production of education, over production of health care 9. Productive Efficiency - Producing items at the lowest possible cost. ex. by replacing human labor with automation, manufacturers are able to increase output while reducing costs.

10. Economic Profit - Gives entrepreneurs an incentive to enter the market. ex. Total Revenue > Total Cost

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