Uploaded by Gill Chia-wen Hsu

Monopolistic Competitive firm summary

advertisement
MONOPOLISTICALLY COMPETITIVE FIRM: SUMMARY
Monopolistic Competitive firm earning
SHORT-RUN profit
● ATC<P
● MR=MC is profit maximizing
quantity
● Find P by drawing line straight up
from MR=MC until intersects D (notice that
D is labeled AR. D=AR)
● Firm is NEITHER allocatively NOR
productively efficient
● Draw this graph EXACTLY the same
as monopoly graph
Monopolistic Competitive firm in the
LONG-RUN ​(normal economic profit)
● P=ATC (breakeven aka normal or zero
economic profit)
● MR=MC is still the profit maximizing
quantity and P is still found by drawing line
straight up from MR=MC to demand
● Like in PC when firms are earning a
profit, other firms will enter the market.
● What happens in monopolistic
competitive firm, demand for the firm’s
product DECREASES and so demand shifts to
the LEFT (as does MR)
P.C. Firm
MONOPOLISTICALLY
COMPETITIVE
Monopoly
X
Firm AND market graph
x
MR=MC: profit maximizing quantity
X
X
NO economic profit in the long run
X
X
Low barriers to entry
X
X
Demand is not equal to MR
X
X
Differentiated product
X
X
Demand is downward sloping
X
X
NOT allocatively efficient
X
X
NOT productively efficient
X
X
MONOPOLISTICALLY COMPETITIVE FIRM: SUMMARY
Allocatively efficient​(Ae)​:
D(AR)=MC
Productively
Efficien​t ​(Pe)​:
minimum of ATC
Role of Advertising
Firms operating under monopolistic competition usually have to engage in advertising
because they offer similar products. Demand curve for monopolistic firm is more elastic
than monopoly.
Monopolistically competitive firms try to DIFFERENTIATE their product via one or more:
price, quality, size, color, packaging, performance (e.g, features), design, distribution and
many times through a ​perceived ​difference (e.g, emotional appeal to consumer).
Most firms are either monopolistically competitive or oligopolies. Examples of industries
that are monopolistically competitive: beverages, fast food, hotels, retailers, personal care
products and many more.
Download
Random flashcards
State Flags

50 Cards Education

Countries of Europe

44 Cards Education

Art History

20 Cards StudyJedi

Sign language alphabet

26 Cards StudyJedi

Create flashcards