Monopolistic Competition
Slide 2 presents the quantity of output for a firm under monopolistic competition.
Slide 3 explains the firm's pricing decision.
Slide 4 illustrates the firm's marginal revenue at its level of output.
Slide 5 illustrates total revenue.
Slide 6 illustrates the firm's ATC.
Slide 7 illustrates the firm's total costs as the firm's ATC x quantity of product.
Slide 8 illustrates the area of total revenue above the firm's total costs. This area represents the firm's profit.
The remainder of the slides pose questions and provide answers based on the graph.
Monopolistic Competition
Price/
Costs/
Revenue in
$s
Locate the intersection of marginal
revenue (MR) and marginal cost (MC)
and draw a line through the intersection
from the demand curve (D) to the X axis
(Quantity). This is the quantity of output
for the monopolistically competitive firm.
MC
P
ATC
MR
Q
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
Locate the intersection of marginal
revenue (MR) and marginal cost (MC)
and draw a line through the intersection
from the demand curve (D) to the X axis
(Quantity). This is the quantity of output
for the monopolistically competitive firm.
MC
P
ATC
MR
Q
D
Quantity
Draw a line from the demand curve to
the Y axis. This is the price the
monopolistically competitive firm will
charge.
Monopolistic Competition
Price/
Costs/
Revenue in
$s
MC
P
ATC
MR
MR
Q
D
Quantity
The firm will produce output to the point
where marginal revenue (MR) is equal to
marginal cost (MC). If the firm produced
output at a level less than where
MR=MC, it would be forgoing revenue
and, therefore, reducing its profits. If it
produced output at a level greater than
where MR=MC, its additional costs
would be greater than its additional
revenue, and it would be reduce its
profits.
Monopolistic Competition
Price/
Costs/
Revenue in
$s
This is the total revenue (TR) received
by the firm. It is the quantity of product
sold multiplied by the product's price.
MC
P
ATC
MR
Q
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
This is the firm's average total cost
(ATC) at this level of output.
MC
P
ATC
ATC
MR
Q
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
This area represents the firm's total cost
(TC) at this level of output.
MC
P
ATC
MR
Q
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
This area represents the firm's profit.
MC
Total Revenue - Total Cost = Profit
P
ATC
MR
Q
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
At what level of output will this firm operate?
MC
F
OL
E
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
What is the marginal revenue at this level of
output?
MC
F
E
0B
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
What price will this firm charge for its product?
MC
F
OE
E
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
The area of which rectangle is equal to total
revenue?
MC
F
E
OEFL
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
What is the firm’s average total cost?
MC
F
OC
E
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
The area of which rectangle is equal to the firm’s
total cost?
MC
F
E
OCHL
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
Is the firm making profits or incurring losses?
MC
F
making economic profit
E
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity
Monopolistic Competition
Price/
Costs/
Revenue in
$s
The area if which rectangle is equal to profits or
losses?
MC
F
E
CEFH
D
G
H
C
K
B
A
MR
O
ATC
L
M
D
Quantity