ECON 103 Lecture Notes - Lecture 19: Takers, Marginal Cost, Market Power
18 Aug 2018
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Document Summary
Chapter 10: price- searcher markets with low entry barriers. Monopolistic competition : a term often used by economists to describe markets characterized by a large number of sellers that supply differentiated products to a market with low barrier to entry. Therefore, a price searcher will lower price and expand output until marginal revenue is equal to marginal cost: profits will be greater if the price is reduced and output can be expanded. In order to sell a higher quantity, a price searcher will have to lower price. Marginal revenue will always be less then price for a price searcher. Maximizing profits: a price searcher maximizes profits by producing where mr=mc. If price > atc, then firm makes an economic profit. If price < atc, then firm makes an economic loss. Competition will drive failing firms out of business and free up the resources used by that firm for more productive use.
