Chapter 16 - Chapter 16 Monopolistic Competition Between...

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Chapter Monopolistic Competition 16
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Between Monopoly & Perfect 22
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Between Monopoly & Perfect 33
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Figure The four types of market 44 Economists who study industrial organization divide markets into four types:
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Competition with Monopolistically competitive firm in short run Profit maximization Quantity: marginal revenue = marginal cost Price: on the demand curve If P > ATC: profit If P < ATC: loss 55
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Figure Monopolistic competitors in 66 P r i c e 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 Quantity (a) Firm makes profit MC AT C Profit- maxi mizin quanti AT C (b) Firm makes losses MR Demand Price P r i c e Quantity 0 Losses MC AT C Loss - mini mizi ng quan tity AT C M R Demand Price
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Competition with The long run equilibrium If firms are making profit in short run New firms - incentive to enter the market Increase number of products Reduces demand faced by each firm Demand curve shifts left Each firm’s profit – declines until: zero economic profit 77
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Competition with The long run equilibrium If firms are making losses in short run Firms - incentive to exit the market Decrease number of products Increases demand faced by each firm Demand curve shifts right Each firm’s loss – declines until: zero economic profit 88
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This note was uploaded on 03/29/2011 for the course ECON 211 taught by Professor Bass during the Winter '11 term at Grand Valley State University.

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Chapter 16 - Chapter 16 Monopolistic Competition Between...

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