Economics 10a Chapter Notes - Chapter 16: Oligopoly
10 Feb 2014
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Competition with differentiated products review table 1 in short run, monopolistically competitive market faces downward sloping demand curve produces quantity at which mr = mc and uses demand curve to find price at that quantity choose quantity and price the same way monopoly does long run equilibrium, no profit demand curve tangent to atc curve at quantity where mr = mc. Monopolistically competitive firms produce below efficient scale in long run (excess capacity) price exceeds marginal cost because of market power (markup), this causes deadweight loss because fewer consumers will buy externalities when new firm enters, not present in perfect competition product variety externality: positive externality on consumers because of consumer surplus from introduction of new product (because offer of different product) business stealing externality: negative externality on other firms because they lose customers and profits (firms always eager to sell additional units because p > mc)
