b) Profit maximisation

• firms in monopolistic competition can maximise profit by…

• producing output at the level where MC = MR

• a graph for a firm in monopolistic competition making normal profit in the long-run

• firms in monopolistic competition can make supernormal profit in the short-run by…

• producing output at the level where ATC < AR

• supernormal profit in the short-run in monopolistic competition is usually due to…

• strong product differentiation

• or a decrease in production costs

• if product differentiation is strong in a monopolistic market, the D = AR and the MR curve…

• become more inelastic

• and shift right

• if production costs decrease in a monopolistic market, the ATC curve…

• shifts downwards

• a graph for a firm in monopolistic competition making supernormal profit in the short-run

• firms in monopolistic competition can make a loss in the short-run by…

• producing output at the level where ATC > AR

• a loss in the short-run in monopolistic competition is usually due to…

• weak product differentiation

• or an increase in production costs

• if product differentiation is weak in a monopolistic marker, the D = AR and the MR curve…

• become more elastic

• and shift left

• if production costs increase in a monopolistic market, the ATC curve…

• shifts upwards

• a graph for a firm in monopolistic competition making a loss in the short-run