ACC 344 Lecture Notes - Lecture 13: Monopolistic Competition, Imperfect Competition, Cost Curve

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Published on 17 May 2018
School
EMU
Department
Accounting
Course
ACC 344
Professor
Monopolistic Competition
- when large # of suppliers produce differentiated goods/have perfect knowledge/no barrier
- MC = type of imperfect competition because differentiated products
- Firms = price setters and rival prices don't matter (not an oligopoly)
- Firms have identical cost function (AC = FC/Q + MC)
- Firms have identical demand functions and sell at same price, P... Q = S/n
Internal EoS
- case of imperfect competition when large firms are price setters
- company average cost curve decreases as market share increases
Imperfect Competition
- Market in which there are either...
1. differentiated/heterogenous goods
2. few producers/buyers in industry
3. imperfect knowledge
4. barriers to entry/exit
- allows for SR profits/loss
- In LR, profit/loss completed away as firms enter/exit
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Internal EOS Model
Using monopolistic competition
1. Assumptions
- monopolistic competition requirements met
- Each firm has identical cost function and price, so market share is equal... Q = S/n
- world market > domestic market size
- consumers prefer more variety over less
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Document Summary

When large # of suppliers produce differentiated goods/have perfect knowledge/no barrier. Mc = type of imperfect competition because differentiated products. Firms = price setters and rival prices don"t matter (not an oligopoly) Firms have identical cost function (ac = fc/q + mc) Firms have identical demand functions and sell at same price, p q = s/n. Case of imperfect competition when large firms are price setters. Company average cost curve decreases as market share increases. Market in which there are either: differentiated/heterogenous goods, few producers/buyers in industry, imperfect knowledge, barriers to entry/exit. In lr, profit/loss completed away as firms enter/exit. Each firm has identical cost function and price, so market share is equal q = s/n. Mutual gains possible despite no difference in resource/technology: closed. Equilibrium n (# firms) where cost curve = price curve. Cc = n(fc/s) + mc and pp = mc + 1/bn. Given s, p, mc, and fc find n: open.