November 24, Review HW: Activities 3-13, 3-14, Lesson 3-9: Monopolistic Competition 3.HW: Activity No Current Event this week! 5.Check Class Website for helpful videos on all Unit 3 Material!

Monopolistic Competition A mixture of Perfect Competition and Monopoly Many firms sell similar but not identical products. Relatively large # of sellers (not nearly as much as perfect competition) Firms determine their own output are price makers. Slightly differentiated products (distinguish from competition through reputation, customer service, location, brand name, etc.) Examples: Retail clothing stores, restaurants, computers, apartments, fast-food, etc. Easy entry and exit into industry

Monopolistic Competition Demand Curve downward sloping and MORE ELASTIC than Monopoly: Lower price to attract more customers due to competition. Marginal Revenue Curve is steeper and below Demand Curve. In the Short Run: 4 profit outcomes: 1.Positive Total Profit 2.Break Even 3.Loss but Not Shut Down 4.Shut Down Firm MUST BREAK EVEN IN Long Run

Monopolistic competitors in the short run 2 4 Price Quantity 0 (a) Firm makes profit Profit MC ATC Profit- maximizing quantity ATC (b) Firm makes losses MR Demand Price Quantity 0 Losses MC ATC Loss- minimizing quantity ATC MR Demand Price

The Long Run: Only a Normal Profit LO2 Quantity Price and Costs MC MR D ATC Q3Q3 P= ATC 0 MR = MC 11-5 Productive inefficiency: P > min ATC Allocative inefficiency: P > MC

Monopolistic Competition: Inefficiency LO2 Quantity Price and Costs MR = MC MC MR D ATC Qm 0 P= min ATC P) QeQe Price is Lower Excess Capacity at Minimum ATC Monopolistic competition is not efficient 11-6