ECON 20A Lecture Notes - Lecture 14: Monopolistic Competition, Deadweight Loss, Perfect Competition
Document Summary
Monopolistically competitive firm: short-run profits = 0: each firm faces a downward sloping demand curve follo(cid:449) (cid:373)o(cid:374)opolist"s decision rule: 1. Find price on demand curve corresponding to q. Perfect competition: in perfect competition, production took place at the efficient scale. Price was equal to marginal cost, and that was also equal to marginal revenue. Firms were producing at the minimum of atc. This is the quantity we would expect to see in the long run in perfect competition: because they are produci(cid:374)g (cid:449)here p = mc, they do(cid:374)"t ha(cid:448)e i(cid:374)ce(cid:374)ti(cid:448)e to produce more. Their profit comes out to 0: in monopolistic competition, they are producing where marginal revenue = marginal cost. The efficient scale is at the atc minimum (perfect competition), but this is not where they produce. The quantity coming out is below the efficient scale, and the difference between the quantity produced and the efficient scale is the excess capacity.
