Review Sheet 4

Review Sheet 4 - Review Sheet 4 1.a market structure in which many firms sell products that are similar but not identical;many sellers(many firms

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Review Sheet 4 1.a market structure in which many firms sell products that are similar but not identical;many sellers(many firms competing for the same group of customers, product differentiation(somewhat different product is offered), free entry(and exit) 2.monopolistic competition and perfect competition are similar in that: rule for maximizing profits is MR=MC, can earn economic profits in the short run, there are many firms, entry in the long run, can NOT earn economic profits in the long run. They are different in that perfect competition is a price taker and mon.comp. is not, perfect competition price is P=MC but mon.comp. price is P>MC, and perfect competition produces welfare-maximizing level of output??, while mon.comp. does not.(pg 386) 3.repeat. 4.in the short run, monopolistic competition faces a downward sloping demand curve b/c its product is offered by other firms(as opposed to a horizontal demand curve at the market price for a perfectly competitive firm). The rule for profit maximization is:it chooses the quantity at which MR=MC and then uses its demand curve to find the price consistent with that quantity.(375 and fig. 1 376) 5.in the long run, demand is reduced b/c more firms choose to enter the market. Therefore, entry shifts the demand curve to the left and the firms experience declining
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This note was uploaded on 03/30/2008 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Review Sheet 4 - Review Sheet 4 1.a market structure in which many firms sell products that are similar but not identical;many sellers(many firms

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