NOTE_Lecture_13_-_monopolistic_competiti

NOTE_Lecture_13_-_monopolistic_competiti - Monopolistic...

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10/1/2009 1 Monopolistic Competition Objectives Definition and characteristics of monopolistic competition The monopolistic competitor in the short run The monopolistic competitor in the long run Product differentiation Many small firms Each firm has small market share so no single firm has any significant influence on price No or low barriers to entry into or exit from the industry Differentiated product Differentiated means the buyer, for whatever reason, makes a difference between one product and another…but there exist close substitutes for an individual firm’s product Monopolistic competition: definition & characteristics
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2 The monopolistic competitor in the short run D MR Monopolistic competitor D MR Monopoly As only one firm in a crowded industry, the monopolistically competitive firm has a very elastic demand curve The monopolistic competitor in the short run P Q D MR MC Like any firm, the monopolistic competitor’s goal is to maximize profits…as such, it will choose to produce that quantity where MR=MC (i.e ., at Q*) and it will charge a price, P*, on the demand curve associated with Q* Q* P* The monopolistic competitor in the short run P Q D MR MC At this Q*, average total cost of producing that quantity = ATC* Q* P* ATC* Since P* > ATC*, the monopolistic competitor is making a profit equal to the shaded area. ATC
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This note was uploaded on 05/22/2011 for the course ECON 1B taught by Professor Jamie during the Spring '06 term at West Valley.

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NOTE_Lecture_13_-_monopolistic_competiti - Monopolistic...

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