ECN 104 Chapter 16: Chapter 16 - Monopolistic Competition
11 Feb 2012
School
Department
Course
Professor
Document Summary
oligopoly: only a few sellers offer similar or identical products. monopolistic competition: many firms sell similar but not identical products. short run: under monopolistic competition, firm behavior is very similar to monopoly. Long run: in monopolistic competition, entry and exit drive economic profit to zero. New firms enter market, taking some demand away from existing firms, prices and profits fall. Some firms exit the market, remaining firms enjoy higher demand and prices. Notice that the firm charges a markup of price over marginal cost and does not produce at minimum. Why monopolistic competition is less efficient than perfect competition. the monopolistic competitor operates on the downward-sloping part of its atc curve, produces less than the cost-minimizing output. under perfect competition, firms produce the quantity that minimizes atc. monopolistically competitive markets do not have all the desirable welfare properties of perfectly competitive markets.
