All Flashcards
Analyze the short-run graph of a monopolistically competitive firm earning a profit.
The firm produces where MR=MC, and price is above ATC at that quantity, indicating positive economic profit.
Analyze the long-run graph of a monopolistically competitive firm.
The demand curve is tangent to the ATC curve at the quantity where MR=MC, resulting in zero economic profit.
What does the tangency of the demand curve and ATC curve signify in the long run?
It signifies that the firm is earning zero economic profit (normal profit).
How does the elasticity of the demand curve differ between monopoly and monopolistic competition?
The demand curve is more elastic in monopolistic competition due to the presence of substitutes.
What does the area between the demand curve and the MC curve represent?
It represents the consumer surplus.
What does the area between the ATC curve and the MC curve represent?
It represents the fixed cost.
How does the location of MC=MR determine the profit-maximizing quantity?
The intersection of MC and MR indicates the quantity at which the firm maximizes its profit or minimizes its losses.
How is the profit-maximizing price determined on the graph?
The profit-maximizing price is found by extending the profit-maximizing quantity up to the demand curve.
How is the ATC determined on the graph?
The ATC is found by extending the profit-maximizing quantity up to the ATC curve.
How is the profit determined on the graph?
The profit is the difference between the ATC and demand curve at the profit-maximizing quantity.
What are the key differences between monopolistic competition and perfect competition?
Monopolistic competition has differentiated products and some price control, while perfect competition has identical products and firms are price takers.
How does long-run profit differ between monopolistic competition and monopoly?
Monopolistic competition earns zero economic profit in the long run, while a monopoly can earn positive economic profit.
Compare the barriers to entry in monopolistic competition and monopoly.
Monopolistic competition has low barriers to entry, while monopoly has very high barriers to entry.
What are the differences in efficiency between monopolistic competition and perfect competition?
Perfect competition is allocatively and productively efficient, while monopolistic competition is inefficient.
Compare the elasticity of demand in monopolistic competition and monopoly.
The demand curve is more elastic in monopolistic competition due to the availability of substitutes.
How does the number of firms differ between monopolistic competition and oligopoly?
Monopolistic competition has many firms, while oligopoly has only a few dominant firms.
How does the degree of product differentiation differ between monopolistic competition and oligopoly?
Monopolistic competition features product differentiation, which may or may not exist in oligopoly.
Compare the role of advertising in monopolistic competition and perfect competition.
Advertising is a key strategy in monopolistic competition, while it is largely absent in perfect competition.
How does the level of price control differ between monopolistic competition and perfect competition?
Monopolistically competitive firms have some control over price, while firms in perfect competition have no control.
How does the long-run equilibrium quantity differ between monopolistic competition and perfect competition?
Monopolistic competition produces less than the allocatively efficient quantity, while perfect competition produces at the allocatively efficient quantity.
What is Monopolistic Competition?
Market structure with many firms selling differentiated products, low barriers to entry, and some price-making ability.
What are differentiated products?
Products that are similar but have perceived or actual differences, leading to brand loyalty and some price control.
What is non-price competition?
Competition based on factors other than price, such as branding, advertising, and product features.
What is excess capacity?
The difference between a firm's optimal output (minimum ATC) and its actual output in the long run.
Define 'price maker' in the context of monopolistic competition.
A firm that has some control over the price it charges due to product differentiation.
What are barriers to entry?
Obstacles that prevent new firms from easily entering a market.
Define allocative efficiency.
A state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.
Define productive efficiency.
A situation in which a good or service is produced at the lowest possible cost.
What is normal profit?
The minimum level of profit needed to keep a firm in an industry.
What is economic profit?
Total revenue less total cost, including both explicit and implicit costs.