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Monopolistic Competition [email_address]
Monopolistic Competition… <ul><li>Developed in1933 by American economist  Edward  Chamberlin  (1899-1967) and English econ...
Monopolistic Competition … <ul><li>A type of competition within an industry where: 1. All firms produce similar yet not pe...
<ul><li>Monopolistic competition differs from perfect competition in that production does not take place at the lowest pos...
<ul><li>Unlike in perfect competition, the monopolistically competitive firm does not produce at the lowest attainable ave...
Monopolistic competition Equilibrium of the firm: short run
Short-run equilibrium of the firm under monopolistic competition £  Q  O Q s P s AC s AR     D MC AC MR
Monopolistic competition Equilibrium of the firm: long run
Long-run equilibrium of the firm under monopolistic competition £  Q  O Q L P L AR L      D L MR L LRAC LRMC
Monopolistic competition Comparison with perfect competition (long run)
Long run equilibrium of the firm under perfect and monopolistic competition Q 2 £ Q O P 1 LRAC D L   under monopolistic co...
 
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Monopolistic 5 a

  1. 1. Monopolistic Competition [email_address]
  2. 2. Monopolistic Competition… <ul><li>Developed in1933 by American economist Edward Chamberlin (1899-1967) and English economist Joan Robinson (1903-1983) </li></ul><ul><li>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). </li></ul>
  3. 3. Monopolistic Competition … <ul><li>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. </li></ul>
  4. 4. <ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>Definitions of Monopolistic Competition …
  5. 5. <ul><li>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. </li></ul><ul><li>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… </li></ul>
  6. 6. Monopolistic competition Equilibrium of the firm: short run
  7. 7. Short-run equilibrium of the firm under monopolistic competition £ Q O Q s P s AC s AR  D MC AC MR
  8. 8. Monopolistic competition Equilibrium of the firm: long run
  9. 9. Long-run equilibrium of the firm under monopolistic competition £ Q O Q L P L AR L  D L MR L LRAC LRMC
  10. 10. Monopolistic competition Comparison with perfect competition (long run)
  11. 11. Long run equilibrium of the firm under perfect and monopolistic competition Q 2 £ Q O P 1 LRAC D L under monopolistic competition Q 1 P 2 D L under perfect competition

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