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Chapter 13

ECON 1116 Chapter 13: Chapter 13- Monopolistic Competition
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Department
Economics
Course
ECON 1116
Professor
Michael Stone
Semester
Spring

Description
Chapter 13- Monopolistic Competition-The Competitive Modeling More Realistic Setting • Monopolistic Competition- a market structure in which barriers to entry are low and many firms compete by selling similar but not identical products Demand/ Marginal Revenue for a Firm in Monopolistically Comp. Market • Downward sloping demand curve • A monopolistically competitive firm must cut the price to sell more, so its marginal revenue curve will slope downward and will be below its demand curve • Average Revenue- always equal to price • When price is cut there is one good thing/ one bad thing—good-sells more//bad- receives less for each product • ***Every firm that has the ability to affect the price of a good or service it sells will have a marginal revenue curve that is below its demand curve How Monopolistically Comp. Firm Maximizes Profit in Short Run • produce the quantity where marginal revenue is equal to marginal cost • charge price where it hits the demand curve!!! What Happens to Profit in the Long Run • Demand curve shifts to the left (as more firms enter) and becomes elastic since there are more substitutes • Firms no longer earn an economic profit • Firm is breaking even whe
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