Monopolistic Competition in the short run Short-run economic profits encourage new firms to enter the market. This o Increases the number of products offered o Reduces demand faced by firms already in the market o Incumbent firms' demand curves shift to the e Demand for the incumbent firms'products fall, and their profits decline. H arc Inc. items and derived items c ht o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopolistic Competition in the Short Run Short-run economic profits encourage new firms to enter the market. This: u Increases the number of products offered. u Reduces demand faced by firms already in the market. u Incumbent firms’ demand curves shift to the left. u Demand for the incumbent firms’ products fall, and their profits decline
Monopolistic Competition in the short run Short-run economic losses encourage firms to exit the market. This o Decreases the number of products offered o Increases demand faced by the remaining firms e Shifts the remaining firms'demand curves to the right. o Increases the remaining firms' profits. H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Monopolistic Competition in the Short Run Short-run economic losses encourage firms to exit the market. This: u Decreases the number of products offered. u Increases demand faced by the remaining firms. u Shifts the remaining firms’ demand curves to the right. u Increases the remaining firms’ profits
The Long-Run Equilibrium Firms will enter and exit until the firms are making exactly zero economic profits H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. The Long-Run Equilibrium Firms will enter and exit until the firms are making exactly zero economic profits
A Monopolistic Competitor in the Long Run.. Price ATC P=A7C…… Demand MR Profit-maximizing Quantity quanti H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. A Monopolistic Competitor in the Long Run... Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P=ATC
Two Characteristics of Long- Run Equilibrium XAs in a monopoly, price exceeds marginal cost e Profit maximization requires marginal revenue to equal marginal cost. The downward-sloping demand curve makes marginal revenue less than price. H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Two Characteristics of LongRun Equilibrium ¶As in a monopoly, price exceeds marginal cost. uProfit maximization requires marginal revenue to equal marginal cost. uThe downward-sloping demand curve makes marginal revenue less than price