Economics 1021A/B Chapter Notes - Chapter 14: Monopolistic Competition, Marginal Revenue, Demand Curve

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Emilie Rivers

Document Summary

A firm practices product differentiation if it makes a product that is slightly different from the products of competing firms. A firm in monopolistic competition maximizes profit by producing the quantity at which marginal revenue equals marginal cost and charging the highest price the market will bear, just like a monopoly. In the figure, the demand curve is d. It is derived in exactly the same way as that of a monopolist. Atc and its marginal cost curve is mc. The firm maximizes profit by producing 125 jackets and selling them at a price of . But unlike monopoly, in monopolistic competition, there are no barriers to entry. And just like the case of perfect competition, entry is triggered by the presence of economic profit. Because in the situation shown here, the firm earns an economic profit, entry occurs. The firm"s demand curve and marginal revenue curve shift leftward. As demand decreases, the firm decreases production and lowers its prices.