ECON 1B03 Lecture Notes - Lecture 32: Monopolistic Competition, Demand Curve, Perfect Competition
Shanghaibalcony1234 and 37744 others unlocked
46
ECON 1B03 Full Course Notes
Verified Note
46 documents
Document Summary
Each firm"s product is at least slightly different from another. So, each firm faces a downward sloping demand curve, like a monopolist. Free entry and exit (no barriers to entry) Firms are price setters to some degree. Monopolistically competitive firm will maximize profits when it produces where its mc = Mr and charge a price based on demand (just like a monopoly) In sr, monopolistically competitive firm behaves just like a monopolist. Sr economic profits encourage new firms to enter market. Reduces demand faced by firms already in market. Existing firms" demand curves decrease/shift to left. Demand for existing firms" products fall, and profits decline. Sr economic losses encourage firms to exit market. Shifts remaining firms" demand curves to right. If there are +ve profits/losses, firms will enter/exit until firms are making exactly 0 economic profits, just like perfect competition. Firms make 0 economic profit when p = atc. However, 0 profit looks different than it does for perfect competition.