Product Differentiation demand curve

Product Differentiation demand curve - On this demand curve...

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Product Differentiation demand curve: The demand curve of a firm will then alter to the advantage of a firm. It will become more flexible and shift upwards. A firm’s capacity to alter the demand curve for its own product is the chief analytical feature of monopolistic competition . Under no other form of market do producers attempt to influence the demand which is entirely based on consumer behavior. Gains of product differentiation have been shown in Figure 49. In the figure dd is the original demand curve that the firm faces before product differentiation.
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Unformatted text preview: On this demand curve at market price P the firm sells output Q. When the firm differentiates its product successfully its demand curve alters and is now d1d1. On the new demand curve the firm at point R1 can charge a price as high as P1 and sell old output Q. It could also charge the same price P and sell a very large output Q1 at point R3. Or then the firm could choose a somewhat higher price (higher than P1 but lower than P2) P2 at point R2 and sell a somewhat larger quantity Q2....
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This note was uploaded on 11/26/2011 for the course ECON MICRO ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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Product Differentiation demand curve - On this demand curve...

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