week9-082 - Monopolistic Competition Market Characteristics...

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1 Monopolistic Competition… Market Characteristics: 1.Many buyers and sellers 2.Differentiated product 3.Low barriers to entry Monopolistic Competition… Firms are price-makers Demand for an individual firm is negatively sloped And, marginal revenue (the additional revenue from selling one more unit of output) is less than price Profit Maximizing Firms PROFIT MAXIMIZATION OCCURS WHEN MR = MC FOR ALL FIRMS PROFIT = TR - TC
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2 Short Run Equilibrium: Monopolistic Competitor Long Run Equilibrium: Monopolistic Competitor LONG-RUN MR = MC P = ATC (Profit is zero) SHORT-RUN MR = MC (Profit is maximized) Profit can be negative, positive or zero Equilibrium: Monopolistic Competitor
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3 Monopolistic Competition vs. Perfect Competition Monopoly… Market Characteristics: 1.Single seller 2.Unique product 3.High barriers to entry Monopoly and PC Outcome Q P S D
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4 Implications of Monopoly… Firms are price-makers Demand for the monopolist firm is the market demand And, marginal revenue (the additional
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week9-082 - Monopolistic Competition Market Characteristics...

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