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Unformatted text preview: Chapter 10—Monopolistic Competition, Oligopoly, and Game Theory I. Monopolistic Competition A. The theory of monopolistic competition is built on three assumptions: 1. There are many sellers and buyers. 2. Each firm in the industry produces and sells a slightly differentiated product. 3. There is easy entry and exist. B. The monopolistic competitor is a price searcher. C. For the monopolistic competitor, P > MR, and the marginal revenue curve lies below the demand curve. D. The monopolistic competitor produces the quantity of output at which MR = MC. It charges the highest price per unit for this output. E. Unlike the perfectly competitive firm, the monopolistic competitor does not exhibit resource allocative efficiency. F. The monopolistic competitive firm does not earn profits in the long run (because of easy entry into the industry) unless it can successfully differentiate its product (e.g., by brand name) in the minds of buyers....
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