Monopolistic competition in short runPresentation Transcript
Presented by,ANIMESH AMAL
Monopolistic competition Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another as goods but not perfect substitutes.
Perfect & MonopolisticCompetition Perfect competition Monopolistic competitionnumber of sellers many manyfree entry/exit yes yesthe products firms sell identical differentiatedfirm has market none yespower?Demand curve facing horizontal downward-slopingfirm
Monopoly & MonopolisticCompetition Monopoly Monopolistic competitionnumber of sellers one manyfree entry/exit no yesfirm has market power? yes yesDemand curve facing downward-sloping downward-slopingfirmclose substitutes none many
Characteristics & ExamplesCharacteristics: Many sellers Product differentiation Free entry and exitExamples: apartments books bottled water clothing
A Monopolistically Competitive Firm EarningProfits in the Short RunThe firm faces adownward-slopingD curve. Price profit MCAt each Q, MR < P. ATC PTo maximize profit,firm produces Q ATC Dwhere MR = MC.The firm uses the MRD curve to set P. Q Quantity
A Monopolistically Competitive FirmWith Losses in the Short RunFor this firm,P < ATCat the output where Price MCMR = MC. losses ATCThe best this firmcan do is to ATCminimize its losses. P D MR Q Quantity
Effect of MonopolisticCompetition in short run If profits in the short run: New firms enter market, taking some demand away from existing firms, prices and profits fall. If losses in the short run: Some firms exit the market, remaining firms enjoy higher demand and prices.