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Unformatted text preview: b) Each separate differentiated product has close substitutes 3) It is possible to predict the optimal price-output combination of the monopolistic competitor. a) The monopolistic competitor’s demand curve is downward sloping; thus its marginal revenue curve lies below its demand curve. b) Short-run equilibrium exists where MR=MC; economic profits or losses are possible in the short run. c) In the long run, because of free entry, the monopolistic competitor must earn exactly zero economic profits. Nevertheless, social inefficiency exists in the long run because the price of its product exceeds marginal cost, and its rate of output lies to the left of the minimum point on the ATC curve....
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This note was uploaded on 03/19/2008 for the course ECON 004 taught by Professor Graf,pauledwin during the Spring '07 term at Pennsylvania State University, University Park.
- Spring '07
- Monopolistic Competition