ECON 1B03 Lecture Notes - Lecture 10: Externality, Monopolistic Competition, Demand Curve
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ECON 1B03 Full Course Notes
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Firms are price setters to some degree: there are many sellers, products are slightly different, no barriers to entry. Encourages new firms to enter the market. Increases the number of products offered: decreases the demand of existing firms, left shift in existing firms mr and demand curve, decreases profits. Encourages firms to exit the market: decreases the number of products offered. Increases the demand of remaining firms: right shift in remaining firms mr and demand curve. Firms continue to enter/exit: until firms make zero. Economic profits: occurs when p = atc. Demand curve is tangent to atc curve: cant intersect with min atc, demand curve is downward sloping portion. Similar to a monopoly: p > mc (selling price, mr = mc (profit maximization, mr < p (because of downward slope) Similar to perfect competition: p = atc (lr equilibrium, zero economic profits (free entry and exit) Different from perfect competition: q produced in the lr.