Monopolistic Competition

Monopolistic Competition

1. Product Differentiation

   • Items are identical across different producers.
   • Physical Differences: Packaging is designed to make a product stand out. Also changes in size, weight, color, taste are included.
   • Location: many items are sold at many different store at many different locations. These are for the convenience to the buyer.
   • Services are also different.
   • And also the Product Image varies.

2. Short-Run Profit Maximization or Loss Minimization

   • Marginal Revenue Equals Marginal Cost
   • Maximizing profit or minimizing loss in the short run

3. Zero Economic Profit in the Long Run

   • Drives some firms out of business

4. Express Capacity: The difference between a firm's profit-maximizing quantity and the quality that minimizes average cost.

   • Firms with excess capacity could reduce average cost by increasing quantity

5. Demand Curve slopes downward

   • More elastic than monopoly

6. Marginal Revenue Curve Slopes down

   • It is also below the demand curve

7. Creative Destruction

   • Out with the old, in with the new.
   • Technology change
   • Some producers Lose
   • Consumer Benefits: Wider choices, and More competitive prices.