TOPICS
- Characteristics and
Examples of Monopolistic Competition
- Short Run
Equilibrium
- Long Run Equilibrium and
Efficiency
OUTCOMES:
List the characteristics
of monopolistic competition.
How many is “many”?
(Concentration Ratio and Herfindahl Index)
Explain how product
differentiation occurs in similar products.
Determine the profit maximizing
price and output level for a monopolistic competitor in
the short run when given cost and demand
data.
Explain why a monopolistic
competitor will realize only normal profit in the long
run.
Draw the short run equilibrium
graphs for a monopolistically competitive firm that (a)
maximizes profit, (b) minimizes loss, and (c) shuts
down
Understand the adjustment process
from the short run to the long run and the role of
barriers to entry (why do monopolistically competitive
firms earn zero economic profits in the long
run?)
Draw the long run equilibrium
graph for a monopolistically competitive firm and
indicate the profit maximizing quantity, the allocatively
efficient quantity, and the productively efficient
quantity.
Why does a monopolistically
competitive firm earn zero economic profits (normal
profits) in the long run?
Identify the reasons for excess
capacity in monopolistic competition.
Explain how product
differentiation may offset the allocative inefficiency of
monopolistic competition.
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