Copyright © 2010 Cengage Learning 17 Monopolistic Competition
Figure 1 The Four Types of Market Structure Tap water Cable TV Monopoly (Chapter 15) Novels Films Monopolistic Competition (Chapter 17) Tennis balls Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect Wheat Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms Copyright © 2010 South-Western
Figure 1 Monopolistic Competition in the Short Run Quantity 0 Price Profit- maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC Copyright © 2010 South-Western
Figure 1 Monopolistic Competitors in the Short Run Demand Quantity 0 Price Loss- minimizing quantity Average total cost (b) Firm Makes Losses MR Losses ATC MC Copyright © 2010 South-Western
Figure 2 A Monopolistic Competitor in the Long Run Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P =ATC Copyright © 2010 South-Western
Figure 3 Monopolistic versus Perfect Competition Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm MC ATC MC ATC MR Efficient scale P Quantity produced Quantity produced = Efficient scale Copyright © 2010 South-Western
Figure 3 Monopolistic versus Perfect Competition Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm mark-up MC ATC MC ATC MR Marginal cost P Quantity produced Quantity produced Copyright © 2010 South-Western
Figure 3 Monopolistic versus Perfect Competition Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm mark-up Excess capacity MC ATC MC ATC MR Marginal cost Efficient scale P Quantity produced Quantity produced = Efficient scale Copyright © 2010 South-Western