Monopolistic Competition

Monopolistic Competition - Long Run: Zero Economic Profit...

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1 Main Concepts ± Monopolistic competition ± Output and price in a monopolistically competitive industry ± Oligopoly ± Game theory explanations of price and output choices in oligopoly Monopolistic Competition Monopolistic competition is a market with the following characteristics: ± A large number of firms. ± Each firm produces a differentiated product . ± Firms compete on product quality, price, and marketing. ± Firms are free to enter and exit the industry.
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2 Monopolistic Competition The red bars refer to the 4 largest firms. Green is the next 4. Blue is the next 12. The numbers are the HHI. Output and Price in Monopolistic Competition The Firm’s Short-Run Output and Price Decision Profit maximization Î quantity at which MR = MC Price is determined from the demand curve.
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3 Output and Price in Monopolistic Competition
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Unformatted text preview: Long Run: Zero Economic Profit In the long run, economic profit induces entry. Entry continues as long as firms in the industry earn an economic profitas long as ( P > ATC ). Demand falls with firm entry until P = ATC and firms earn zero economic profit. Monopolistic Competition vs. Perfect Competition Excess capacity Markup Bottom line: people value variety but variety is costly. 4 Output and Price in Monopolistic Competition Firms in monopolistic competition operate with positive mark up. Again, the downward-sloping demand curve for their products drives this result. Product Development and Marketing Advertising Firms in monopolistic competition incur heavy advertising expenditures. Cleaning supplies and toys top the list at almost 15 percent....
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Monopolistic Competition - Long Run: Zero Economic Profit...

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