EC120 Lecture Notes - Lecture 14: Monopolistic Competition, Imperfect Competition, Zero Zero (Comics)
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Chapter 17: monopolistic competition: differentiated products are everywhere; examples of monopolistic competition abound. 2 extremes between monopoly and competition: perfect competition: many firms, identical products, monopoly: one firm. In between these extremes: imperfect competition: oligopoly: only a few sellers offer similar/identical products, monopolistic competition: may firms sell similar but not identical products. Characteristics of monopolistic competition: many sellers (firms, product differentiation, free entry and exit. Gas: location is a critical dimension of product differentiation. Flatter d and mr curves than monopolist due to competition. It is a loss if p < atc. Monopolistic competition and monopoly: short run: under monopolistic competition, firm behaviour is similar to monopoly. Long run: in monopolistic competition, entry and exit drive economic profit to zero (p = atc) If profits in sr: new firms enter, taking d away from existing firms, p and profits fall.