econ 1 - In Chapter 11, you learned about the market...

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In Chapter 11, you learned about the market structure of perfect competition. Growing wheat and growing apples are examples of perfectly competitive markets. Here in Chapter 12, you will learn about the more common market structure of monopolistic competition. If you shop at supermarkets and go to movie theaters, you are dealing with firms that are in monopolistically competitive markets. Monopolistical competition is the most common market structure in the United States. This structure has three characteristics: 1. There are many buyers and sellers 2. Barriers to entry are low 3. Firms compete by selling similar but differentiated goods and services Each monopolistically competitive firm faces a downward-sloping demand curve, so marginal revenue is less than price. Firms maximize profit by producing the level of output that makes marginal revenue equal marginal cost. The firm may earn an economic profit or suffer an economic loss in the short run. Because there are low entry barriers, in the long run, economic profits will cause new firms to enter the market. A
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This note was uploaded on 01/28/2011 for the course ACCT 2001 taught by Professor Lowe during the Spring '08 term at LSU.

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