Unformatted text preview: quantity and price just as a monopoly does. In the short run, these two types of market structure are similar. THE LONG-RUN EQUILIBRIUM The situations depicted in Figure 17-1 do not last long. When firms are mak-ing profits, as in panel (a), new firms have an incentive to enter the market. This Quantity Profit-maximizing quantity Loss-minimizing quantity Price Price Demand Demand MR ATC (a) Firm Makes Profit Quantity Price Price Average total cost Average total cost (b) Firm Makes Losses Profit Losses MC Figure 17-1 M ONOPOLISTIC C OMPETITORS IN THE S HORT R UN . Monopolistic competitors, like monopolists, maximize profit by producing the quantity at which marginal revenue equals marginal cost. The firm in panel (a) makes a profit because, at this quantity, price is above average total cost. The firm in panel (b) makes losses because, at this quantity, price is less than average total cost....
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- Spring '10
- Economics, average total cost, S HORT R UN