Chap_16 - Introduction: BetweenMonopolyandCompetition Two...

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MONOPOLISTIC COMPETITION 1 Introduction:   Between Monopoly and Competition Two extremes Perfect competition: many firms, identical products Monopoly: one firm In between these extremes: imperfect competition Oligopoly : only a few sellers offer similar or identical products. Monopolistic competition : many firms sell similar but not identical products. 0
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MONOPOLISTIC COMPETITION 2 of Monopolistic Competition Characteristics: Many sellers Product differentiation Free entry and exit Examples: apartments books bottled water clothing fast food night clubs 0
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MONOPOLISTIC COMPETITION 3 yes none, price-taker firm has market power? downward- sloping horizontal D curve facing firm differentiated identical the products firms sell zero zero long-run econ. profits yes yes free entry/exit many many number of sellers Monopolistic competition Perfect competition 0
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MONOPOLISTIC COMPETITION 4 yes yes firm has market power? downward- sloping downward- sloping (market demand) D curve facing firm many none close substitutes zero positive long-run econ. profits yes no free entry/exit many one number of sellers Monopolistic competition Monopoly 0
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MONOPOLISTIC COMPETITION 5 A Monopolistically Competitive Firm  Earning Profits in the Short Run The firm faces a downward-sloping D curve. At each Q , MR < P . To maximize profit, firm produces Q where MR = MC. The firm uses the D curve to set P . profit ATC P Quantity Price ATC D MR MC Q 0
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6 A Monopolistically Competitive Firm  With Losses in the Short Run For this firm, P < ATC at the output where MR = MC . The best this firm
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Chap_16 - Introduction: BetweenMonopolyandCompetition Two...

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