ECN 153 Chapter Notes - Chapter 16: Demand Curve, Monopolistic Competition, Perfect Competition
20 Oct 2016
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In a monopolistic competition, the sellers are price makers rather than price takers. That is the sellers can charge whatever they choose want. The price in a perfectly competitive market always equals the marginal cost of production. In the long run, entry and exit drive economic profit to zero, so the price also equals average total costs. Monopoly firms can use their market power to keep prices about marginal cost, leading to a positive economic profit for the firm and a deadweight loss for society. Competition and monopoly are extreme forms of market structure. Competition occurs when there are many firms in a market offering essentially identical products; monopoly occurs when there is only one firm in a market. Oligopoly- is a market with only a few sellers, each offering a product that is similar or identical to the products offered by other sellers.
