Monopolistic
Competition
doc.ejlopez@gmail.com
Monopolistic Competition…

Developed in1933 by American
economist Edward Chamberlin (18991967) and English economist
Joan ...
Monopolistic Competition …
A type of competition within an industry
where:
1. All firms produce similar yet not
perfectly ...
Definitions of Monopolistic Competition …
Monopolistic competition differs from perfect
competition in that production doe...
Unlike in perfect competition, the
monopolistically competitive firm does not
produce at the lowest attainable average
tot...
Monopolistic competition

Equilibrium of the firm:
short run
Short-run equilibrium of the firm
under monopolistic competition
£

MC
AC

Ps
ACs

AR = D
MR
O

Qs

Q
Monopolistic competition

Equilibrium of the firm:
long run
Long-run equilibrium of the firm
under monopolistic competition
£

LRMC
LRAC
PL

ARL = DL
MRL
O

QL

Q
Monopolistic competition

Comparison with perfect
competition (long run)
Long run equilibrium of the firm under perfect and
monopolistic competition
£

LRAC
P1
P2

DL under perfect
competition

D...
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  • Monopolistic5a 110723040818-phpapp02

    1. 1. Monopolistic Competition doc.ejlopez@gmail.com
    2. 2. Monopolistic Competition… Developed in1933 by American economist Edward Chamberlin (18991967) and English economist Joan Robinson (1903-1983) Monopolistically competitive firm's own demand curve is highly elastic, permitting it to vary its price within a narrow range of prices. The other firms' products are either very close substitutes or, a large number of other firms' products are substitutes (not necessarily very close substitutes).
    3. 3. Monopolistic Competition … A type of competition within an industry where: 1. All firms produce similar yet not perfectly substitutable products. 2. All firms are able to enter the industry if the profits are attractive. 3. All firms are profit maximizers. 4. All firms have some market power, which means none are price takers.
    4. 4. Definitions of Monopolistic Competition … Monopolistic competition differs from perfect competition in that production does not take place at the lowest possible cost. Because of this, firms are left with excess production capacity. A monopolistically competitive firm acts like a monopolist in that the firm is able to influence the market price of its product by altering the rate of production of the product. Unlike in perfect competition, monopolistically competitive firms produce products that are not perfect substitutes. As such, brand X's product, which is different (or at least perceived to be different) from all other brands' products, is available from only a single producer.
    5. 5. Unlike in perfect competition, the monopolistically competitive firm does not produce at the lowest attainable average total cost. Instead, the firm produces at an inefficient output level, reaping more in additional revenue than it incurs in additional cost versus the efficient output level. To say that products are differentiated is to say that the products may be (more or less) good substitutes, but they are not perfect substitutes. For example…
    6. 6. Monopolistic competition Equilibrium of the firm: short run
    7. 7. Short-run equilibrium of the firm under monopolistic competition £ MC AC Ps ACs AR = D MR O Qs Q
    8. 8. Monopolistic competition Equilibrium of the firm: long run
    9. 9. Long-run equilibrium of the firm under monopolistic competition £ LRMC LRAC PL ARL = DL MRL O QL Q
    10. 10. Monopolistic competition Comparison with perfect competition (long run)
    11. 11. Long run equilibrium of the firm under perfect and monopolistic competition £ LRAC P1 P2 DL under perfect competition DL under monopolistic competition O Q1 Q2 Q

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