econ chapter 10 Monopolistic competition

Monopolistic competition Chapter 10 monopolistic competition

market structure with many firms selling products that are substitutes but different enough that each firm’s demand curve slopes downward, firm entry is relatively easy

Where is profit maximized? Chapter 10 monopolistic competition

where MR equals MC

When does the firm equal economic profit? Chapter 10 monopolistic competition

price exceeds ATC

If price is lower than ATC and greater than AVC Chapter 10 monopolistic competition

firm incur economic loss but continue to produce in the short run

When does a firm shut down? Chapter 10 monopolistic competition

if price is less than AVC

Monopolistic competitive firm in the short run (maximizing short-run profit) Chapter 10 monopolistic competition

price is indicated by point b on downward sloping demand curve, earns short run economic profit in blur rectangle

Minimizing short-run loss Monopolistic competitor in the short run Chapter 10

average total cost exceeds the price at the output where marginal revenue equals marginal cost, the firm suffers a short-run loss equal to c-p multiplied by q, shown by pink rectangle

because market entry is easy, monopolistically competitive firms earn (Chapter 10 Monopolistic Competition)

zero economic profit in the long run

Long-run equilibrium in monopolistic competition (Chapter 10 Monopolistic Competition)

economic profit is zero at output q which means no more firms will enter

Comparing perfect competition versus monopolistic competition in long-run equilibrium (chapter 10 monopolistic competition)

on the left the perfectly competitive firm of panel faces a demand curve that is horizontal at market price, monopolistically competitive firm produces less output and charges at a higher price

do either firms earn economic profit? Chapter 10 Monop. comp.

no

Oligopoly

few suppliers