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Monopolistic Competition

Monopolistic Competition. Assumptions. Many buyers and a “ large - ish ” number of sellers Sellers are p rice - makers (i.e. have market power) to some extent in the short run Differentiated products Freedom of entry and exit. Short Run Equilibrium : Firm. MC. P. q. Demand. MR.

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Monopolistic Competition

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  1. Monopolistic Competition

  2. Assumptions • Many buyers and a “large-ish” number of sellers • Sellers are price-makers (i.e. have market power) to some extent in the short run • Differentiated products • Freedom of entry and exit

  3. Short Run Equilibrium: Firm MC P q Demand MR

  4. Short Run Equilibrium: Firm MC Output: MC=MR P qmc q Demand MR

  5. Short Run Equilibrium: Firm MC Price is Pmc P Pmc qmc q Demand MR

  6. Short Run Equilibrium: Firm MC Note: Pmc>AC at qmc Excess profits exist (in the short run) P AC Pmc q qmc Demand MR

  7. Long Run Equilibrium: Firm MC Note: Pmc=AC at Ymc P There areno excess economic profits in the long run Pmc AC qmc q Demand MR

  8. Monopolistic Competition v. Perfect Competition v. Monopoly • Homework

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