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Unformatted text preview: Under PC the price is equal to the firm’s min ATC. Under monopolistic competition the price will be greater. b) The ATC under PC will be at the min ATC point, under monopolistic competition the firm will be producing a smaller quantity at a higher ATC. c) Under PC the market is both allocatively efficient (P=MC) and productively efficient (P= min ATC). Under monopolistic competition the firm is producing at less than min ATC and has excess capacity. Also P >MC. There is debate about the efficiency implications as people are willing to pay more for product variety. d) Due to free entry firms make zero economic profits in the long run under both PC and monopolistic competition. The answer should ideally include diagrams of the long run equilibrium positions of the firm under PC and monopolistic competition....
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This note was uploaded on 01/28/2011 for the course ECON 103 taught by Professor Rutherford during the Winter '10 term at University of Victoria.
- Winter '10