4.7.10 – Lecture Notes, Econ 201

4.7.10 – Lecture Notes, Econ 201 - 4.7.10...

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4.7.10 – Lecture Notes, Econ 201 MONOPOLISTIC COMPETITION Similar to Perfect Competition: - Free to enter and exit - Lots of firms Different from Perfect Competition: - Product Differentiation The short-run analysis of the monopolistically competitive firm proceeds exactly a for monopoly, ANGEL. .. Demand Curve goes DOWN from left to right As new firms enter, the demand curve for this firm shifts down Capacity for a M-C firm is where the MC curve crosses the AC curve. M-C Firm Excess Capacity EXCESS CAPACITY - In the LR equilibrium, note that the firm is operating: o NOT at the efficient scale of the firm o NOT at lowest ATC o At an output LESS than that o WHY? Downward sloping demand curve, compared with flat demand curve in perfect competition - IMPLICATIONS o Too many firms in the industry o Each of the firms too small o “Cost” of variety Do M-C firms operate in society’s interest? Do they product outputs and sell at prices which maximize surplus? ^^ Generally “no,” because price will be greater than marginal cost
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4.7.10 – Lecture Notes, Econ 201 - 4.7.10...

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