Monoplistic

competition

Presented by:
Durresameen
 Monopolistic Competition
• Large number of sellers
–Small market shares
–Independent action
• Differentiated Products
–Product attributes
–Service
–Location
–Brand names and packaging
–Some control over price
11-2
 Monopolistic Competition
• Easy entry and exit
• Need for advertising
–Nonprice Competition

11-3
 Monopolistic Competition
• Firm’s demand curve
–Highly elastic
• Short run profit or loss
–Produce where MR=MC
• Long run normal profit

11-4
 Monopolistic Competition
Short-Run Profits
ATC
MC
Price and Costs

P
A
1

Economic D
Profit 1
MR = MC

MR

0 Q
Quantity
1

11-5
 Monopolistic Competition
Short-Run Losses
ATC
MC

A
Price and Costs

P
2

Loss
D
2
MR = MC

MR

0 Q
Quantity
2

11-6
 Monopolistic Competition
Long-Run Equilibrium
MC
ATC
Price and Costs

P3=
A3

D
3
MR = MC

MR

0 Q
Quantity
3

11-7
 Monopolistic Competition
P=MC=Min ATC for pure competition (recall)
MC

AT
C
P3=
A3
P
Price and

Price is Lower
Costs

D3

MR = MC
Excess Capacity at
Minimum ATC MR
0 Q3 Q
Quantity
4

Monopolistic competition is not efficient

11-8
Thank You