Economics Internal Assessment

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Alison Nathanson
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

717 words

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 differentiation, and free entry and exit. Anyone can make a movie, yet it is the differentiations of each that allow for moviegoers to decide which ones they want to see, and therefore which ones will gross the most money.

In the long run, monopolistically competitive firms have zero profit equilibrium.

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If one movie is making a lot of money, more movies are put into theatres to try and even out competition, or if one company is producing a lot of movies, writers sell to other companies (new firms enter) and the demand curve shifts to the left. If no one is watching the movies, firms loose money and the demand curve shifts to the right. Due to these shifts, zero profit equilibrium occurs, as shown above, where price equals average total cost.

In movies today, and always, companies have made deals with movies in order to be included in a film. This is all part of marketing, as for example; companies think that if Brad Pitt is eating a Twix in a movie, the movie watchers are more likely to buy a Twix after the movie than to buy Snickers.

The author stated that “Now, having Campbell’s Soup or Chrysler associated with your project can be nearly as important to your pitch as signing Tom...
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