Econ 17

Econ 17 - Monopolistic Competition Not monopoly SOME...

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Monopolistic Competition Not monopoly SOME competition Some power over price Product Differentiation Allows monopolistically competitive firms to acquire some market power Difference would be in the minds of the consumers Role of advertising Key is to understand consumers have different preferences There is competition among sellers, trying to capture limited market There is value in diversity; gains to consumers from choice and differentiated products LR: There is competition SR =librium Each firm faces down sloping DD curve, MR curve lies below DD (demand) curve Production occurs where MR=MC Result P>MC Firms can make economic profits or losses As firms leave the industry, the demand curve shifts up Economic profits in the SR, other firms are going to enter the market The demand will decrease per seller LR =libruim No firm has an incentive to enter/exit the industry Because there is reww entry and exit, the economic profit in LR must be 0 P> MC Economic Profits=0 P=AC P>min AC Cost minimization not achieved in this setup
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Econ 17 - Monopolistic Competition Not monopoly SOME...

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