Econ11Fall2007NotesForLecture_24Dec3 - Lecture XXIV Notes...

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Unformatted text preview: Lecture XXIV Notes For December 3, 2007, I. Monopolistic Competition - the Market For Style II. Contrasting Monopoly & Monopolistic Competition III. Introduction to Game Theory and Oligopoly I. Monopolistic Competition - the Market for Style A. Heterogeneous output and easy entry B Downward sloping demand curve for heterogeneous output – customers are willing to pay a “premium” for the output for individual firms compared to competitors. C. Short run, firm looks like ordinary monopoly 1.Demand is given by D’, and production is at Q’ where MC L = MR’. Price = P’ > AC L , P = (P’-AC’)Q’ 2. Given P > 0, new firms enter D. Long entry looks like Monopolis Ordinarius 1. Demand shifts to the right and flattens because customers “stolen” by new entrants. Entry stops when profit = 0, because demand falls to D* and P*=AC L . $/Q MC L P’ P*=AC AC L AC’ D’ MR* MR’ D* Q* Q’ Q II. Contrast Monopoly & Monopolistic Competition A. Lesson: the form of market organization has A....
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Econ11Fall2007NotesForLecture_24Dec3 - Lecture XXIV Notes...

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