Econ HW Ch. 11

However it will not make a profit because while the

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Unformatted text preview: rice without losing customers, thereby maximizing their profits. With success in nonprice competition, the firm can make more of its products and ultimately make more of a profit. #5. a. A monopolistic competitor’s long- run equilibrium output is such that price exceeds the minimum average total cost (implying that consumers do not get the product at the lowest price attainable) and price exceeds marginal cost (indicating that resources are underallocated to the product). Therefore, in the long run monopolistic competition makes normal profit. The first part is true under this but the second part is not. The monopolistic competitor is making no economic profits because it is offering product variety; it’s just that it is not maximizing its efficiency. b. In the long run, a monopolistic competitor’s goal is to match minimum ATC to its price in order to produce economic efficiency. However, it will not make a profit because while the good is produced in the least costly way, it is exactly sufficient to cover average total cost. #6. Oligopolies exist because it is basically everything else that is not encompassed by pure competition, monopolistic competition, or pure monopoly. It is a market dominated by a few large producers of a homogeneous or differentiated product. The US. Aluminum industry, “Big Four” business firms, steel industry, automobile industry, farm implement producers, and household appliance manufacturers are all examples of oligopolies. It is different from monopolistic competition in that it...
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This note was uploaded on 01/28/2014 for the course ECON 203 taught by Professor Al-sabea during the Fall '05 term at USC.

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