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Doncouse_Jeremy_Week3-2 - Jeremy Doncouse ECON202 Chap 23...

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Jeremy Doncouse ECON202 Chap 23 Key Questions 10/18/2008 2) The purely competitive seller faces a perfectly elastic demand at the price determined by market supply and demand. Because the pure monopolist is the industry, its demand curve is the market demand curve making its market demand not perfectly elastic causing the demand curve to slope downward. The demand curve faced by a monopolistically competitive seller is highly, but not perfectly, elastic. Pure Competition MC ATC Price P MR P = MC = ATC D 0 Q Quantity Monopolistic Competition MC ATC P Price D MR = MC MR 0 Q Quantity In the long-run a monopolistic competitor achieves neither productive or allocative efficiency. Productive efficiency is not realized because production occurs where the ATC exceeds the minimum ATC. Allocative efficiency is not realized because P exeeds MC. The result is an underallocation of resources and excess production capacity. In pure competition in the long-run the equality of P, MC, and ATC at output Q indicates that the firm is achieving productive efficiency and allocative efficiency.
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