Chapter 23 Competitive Price Seacher market

Chapter 23 Competitive Price Seacher market - Competitive...

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Competitive price-searcher markets [Another “structure” model of competition] Monopolistic Competition, Contestable Markets Price Discrimination Chapter 22
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Competitive price-searcher markets [Price-searcher markets with low entry barriers] Key features of this structure model: Low entry barriers Differentiated products Typical firm faces a downward-sloping demand curve. This results from differentiated products and consumers’ willingness to patronize brand names . The demand is likely to be fairly elastic (flatter) since products of competitors are good substitutes. Hence, firms in this structure model of competition are not price-takers, but search” for profit-maximizing price
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Note: Initially called “monopolistic competition” or “imperfect competition” “Monopolistic competition” is misnomer: these markets are hardly monopolistic or uncompetitive—and what does it mean to be “imperfect”? “Competitive price-searcher markets” is more descriptive of the real world.
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The price-searcher’s price and output. Again, profit-maximizing rule: MC=MR d MR Price Quantity/time P C Economic profit MC ATC 1. Expand output until MR = MC q 2. Search for price along demand curve Flatter demand curve indicative of a highly elastic demand. Why?
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Competitive price-searcher and long-run equilibrium. Profits or losses can occur in the short run for a competitive price searcher similar to the other models.
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Chapter 23 Competitive Price Seacher market - Competitive...

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