B. Two types of models 1. Spatial or location models - each customer prefers products that have certain characteristics or are sold by firms located near them and is willing to pay a premium for those preferred products. Product Differentiation A. Key Concepts 1. Pricing of one brand exerts a greater constraint on another brand's pricing when the two brands are close substitutes than when they are not. B. Two approaches to analyzing differentiation 1.
Consumers have preferences regarding commodities.
Less Sugar Captain Crunch Shredded Wheat C. Demand Curve facing individual firm in monopolistic competition is 1. Dependent on prices of each rival product. With undifferentiated products, its the same as the Cournot oligopoly model but there is free entry. Thus, the lower the fixed costs, the higher the equilibrium number of firms. Lower fixed costs lead to higher profits which lead more firms to enter.