ECON 1B03 Lecture Notes - Lecture 1: Monopolistic Competition, Product Differentiation, Demand Curve
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ECON 1B03 Full Course Notes
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Mc = mr and charge a price based on demand (just like a monopoly). In the sr, a monopolistically competitive firm behaves just like a monopolist. Sr economic profits encourage new firms to enter the market. Increases the number of products offered: reduces demand faced by firms already in the market, existing firms" demand curves shift to the left, demand for the existing firms" products fall, and their profits decline. Sr economic losses encourage firms to exit the market. Increases demand faced by the remaining firms: decreases the number of products offered, shifts the remaining firms" demand curves to the right, decrease the remaining firms" losses. If there are positive profits or losses, firms will enter or exit until the firms are making exactly zero economic profits, just like perfect competition: firms make zero economic profits when. P = atc: however, zero profit looks different than it does for perfect competition.