ECON 305 Lecture Notes - Lecture 10: Monopolistic Competition, Economic Surplus, Prokaryotic Small Ribosomal Subunit
11 Dec 2014
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Document Summary
Whether or not product c will be launched depends on: Number of firms and potential entrants in the industry. Ta and tb: relevant gross payoff to the producer of a and b contemplating the introduction of c. to the producer"s perspective, they represent increased contribution to profits. If the firm is a monopolist, it will produce c if ta + tb > f. A monopolistic competitor is considering offering c in competition with other sellers" products a and b. C is priced at the same level as a and c. Ka and kb: transfers of producers" surplus from the makers of a and b to the producer of c. If the ta+tb >f for monopolists but ta+tb+ka+kb>f, then the monopolistic competitor will launch the product. A greater variety of substitute may appear under monopolistic competition with entry open than with entry blockaded.
