ECON 3411 Lecture Notes - Lecture 39: Monopolistic Competition, Marginal Revenue, Market Power
Document Summary
Managing a monopolistically competitive firm: like a monopoly, monopolistically competitive firms. Have market power that permits pricing above marginal cost. level of sales depends on the price it sets: but . The presence of other brands in the market makes the demand for your brand more elastic than if you were a monopolist. Free entry and exit impacts profitability: therefore, monopolistically competitive firms have limited market power. If firms in monopolistically competitive markets earn short-run. Profits, additional firms will enter in the long run to capture some of those profits. losses, some firms will exit the industry in the long run. In the long run, monopolistically competitive firms produce a level of output such that: (cid:1842) = > (cid:1865)(cid:1866)(cid:1865)(cid:1873)(cid:1865) (cid:1867)(cid:1858) (cid:1874)(cid:1857)(cid:1870)(cid:1859)(cid:1857) (cid:1867)(cid:1871)(cid:1872)(cid:1871) Depends, in part, on the nature of the industry. The optimal amount of advertising balances the marginal benefits and marginal costs: profit-maximizing advertising-to-sales ratio is: