ECO101H1 Lecture Notes - Lecture 11: Monopolistic Competition, Perfect Competition, Demand Curve

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7 Dec 2016
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Oligopoly: only a few sellers offer similar or identical products (with strategy behaviour) Monopolistic competition: many firms sell similar but not identical products. Characteristics: many sellers, product differentiation, free entry and exit. Examples: apartments, books, bottled water, clothing, fast food, night clubs. # of sellers free entry/exit many yes long-run economic profit zero many yes zero products sold identical differentiated market power none, price-taker yes. # of sellers free entry/exit one no long-run economic profit positive many yes zero d curve facing firm downward sloping (market demand) downward-sloping market power yes close substitutes none yes many. Monopolistically competitive firm earning profits in the short run the firm faces a downward-sloping d curve. To maximize profit, firm produces q where mr = mc. The firm uses the d curve to set p. Monopolistically competitive firm with losses in the short run. For this firm, p < atc at the output where mr = mc.

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