EC120 Chapter Notes - Chapter 16: Perfect Competition, Product Differentiation, Imperfect Competition
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EC120 Full Course Notes
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Two extremes: perfect competition: many rms, identical products, price takers, monopoly: one rm, price maker. Oligopoly: only a few sellers offer similar or identical products. Monopolistic competition: many rms sell similar but not identical products. Concentration ratio: the % of total output in the market supplied by the four largest rms. Characteristics and examples of monopolistic competition: many sellers, product differentiation, free entry and exit. Comparing monopolistic competition to perfect competition and monopoly. A monopolistically competitive firm earning pro ts in the short run. A monopolistically competitive firm with losses in the short run. Under monopolistic competition, rm behaviour is very similar to monopoly. Long run: in monopolistic competition, entry and exit drive economic pro t to zero. If there are pro ts in the short run: Prices and pro ts fall taking some demand away from existing rms (demand curve shifts left) If there are losses in the short run: