Lecture 21 - Announcements Reading for today text Ch 11 pp 298-321(284-306 5th edition Reading for Wednesday text Ch 13 pp 354-376(336-354 5th

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11/30/2009 1 ± Reading for today ± text Ch 11 pp. 298-321 (284-306 5 th edition) ± Reading for Wednesday ± text Ch 13 pp. 354-376 (336-354 5 th edition) Announcements Market Structure ± Monopolistic Competition ± many firms ± free entry ± differentiated product 19 ± how products are differentiated ± physical characteristics ± convenience ± location ± optimal amount of differentiation ± differentiation brings in additional revenue ± differentiation increases costs ± if the extra revenue is greater than the extra cost, do more ± variety of goods Monopolistic Competition ± product differentiation ± market power: price-setting ability can charge a higher price and not lose all customers ± seller faces downward-sloping demand curve 19 P Firm Q Demand curves facing individual firm D P Monopolistic Competition ± demand curve for existing firm shifts with entry or exit ± demand for firm decreases with entry of another firm market demand is same firm’s share of market demand is smaller 19 Firm Q Demand curves facing individual firm D facing individual firm D 2 Other firms enter industry ± demand curve for existing firm shifts with entry or exit ± demand for firm decreases with entry of another firm market demand is same P Monopolistic Competition 19 increases exit larger Firm Q Demand curves facing individual firm D D 1 Other firms leave industry Profit P MC Monopolistic Competition ± short-run profit maximization ± increase output if MR > MC ± decrease output if MC > MR ± profit maximized where MR = MC 19 ± price determined by demand Profits Firm Q D FIRM ATC MR Q P
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11/30/2009 2 ± decrease in existing firm’s demand Monopolistic Competition 20 ± economic profits entry of new firms ± economic profit = 0 no incentive for entry P Firm Q D FIRM ATC MR P D FIRM MR Firms Entered Profits go down to zero Q Monopolistic Competition 20 ± short-run profit maximization ± profit maximized where MR = MC ± price determined by demand P MC Loss Firm Q D FIRM ATC MR Q P ± increase in existing firm’s demand Monopolistic Competition 21 ± losses
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This note was uploaded on 03/21/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Lecture 21 - Announcements Reading for today text Ch 11 pp 298-321(284-306 5th edition Reading for Wednesday text Ch 13 pp 354-376(336-354 5th

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