ECON 1B03 Lecture Notes - Lecture 10: Monopolistic Competition, Perfect Competition, Root Mean Square
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ECON 1B03 Full Course Notes
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Product differentiation: each rm"s product is at least slightly different from another rm"s. So, each rm faces a downward sloping demand curve, like a monopolist. Free entry and exit (no barriers to entry) The monopolistically competitive rm maximize pro ts when it produces its mc = mr and charge based on demand (just like a monopoly) In the short run, a monopolistically competitive rm behaves just like a monopolist. In the short run, short run economic pro ts encourage new. This increases the number of products offered, decreases the demand faced by rms already in the market. Existing rms demand curves shift left, pro ts fall. If there are positive pro ts or losses, rms will enter or exit until the rms are making exactly zero economic pro t, just like perfect competition. Firms make zero economic pro ts when p = atc. However, zero pro t looks different than it does for perfect competition.
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