{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

chapter_12 - Monopolistic Competition Characteristics 1...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12 Slide 1 Monopolistic Competition Characteristics 1) Many firms 2) Free entry and exit 3) Differentiated product (but high degree of substitutability) The amount of monopoly power depends on the degree of differentiation. Examples of this common market structure include: Toothpaste; Soap; Cold remedies; Soft Drinks; Coffee
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
A Monopolistically Competitive Firm in the Short and Long Run Quantity $/Q Quantity $/Q MC AC MC AC D SR MR SR D LR MR LR Q SR P SR Q LR P LR Short Run Long Run
Background image of page 2
Chapter 12 Slide 3 Observations (short-run) Downward sloping demand - differentiated product Demand is relatively elastic - good substitutes MR < P Profits are maximized when MR = MC This firm is making economic profits Monopolistic Competition in the SR
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter 12 Slide 4 Observations (long-run) Profits will attract new firms to the industry (no barriers to entry) The old firm’s demand will decrease to D LR Firm’s output and price will fall Industry output will rise No economic profit ( P = AC ) P > MC -- some monopoly power Monopolistic Competition in the LR
Background image of page 4
Deadweight loss MC AC Comparison of Monopolistically Competitive Equilibrium and Perfectly Competitive Equilibrium $/Q Quantity $/Q D = MR Q C P C MC AC D LR MR LR Q MC P Quantity Perfect Competition Monopolistic Competition
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter 12 Slide 6 Monopolistic Competition Reduction in Economic Efficiency The monopoly power (differentiation) yields a higher price than perfect competition. If price was lowered to the point where MC = D , total surplus would increase by the yellow triangle.
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}