ECON-101 Lecture Notes - Lecture 16: Monopolistic Competition, Market Power, Imperfect Competition
Document Summary
Thus, rather than being a price taker, each firm faces a downward-sloping demand curve. Highly elastic demand curve: free entry and exit: firms can enter or exit the market without restriction. Thus, the number of firms in the market adjusts until economic profits are driven to zero: because they are not homogenous goods anymore, they have market power no longer price takers. The monopolistically competitive firm in the short run: the monopolistically competitive firm follows a monopolist"s rule for profit maximization: It chooses the quantity at which marginal revenue equals marginal cost and then uses its demand curve to find the price consistent with that quantity: find mr