Economics 1021A/B Lecture Notes - Monopolistic Competition, Demand Curve

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Prof

Document Summary

Monopolistic competition occurs when a large number of firms compete with each other on product quality, price, and marketing. Each firm in monopolistic competition faces a downward-sloping demand curve and produces the profit-maximizing quantity. Entry and exit result in zero economic profit and excess capacity in long- run equilibrium. Firms in monopolistic competition innovate and develop new products. Advertising expenditures increase total cost, but average total cost might fall if the quantity sold increased by enough. Advertising expenditures might increase demand, but demand might decrease if competition increases.