Monopolistic Competition Long Run Equilibrium

1. Monopolistic CompetitionLong Run Equilibrium Chapter 17 Pages 373-386

2. 3 Market Structures Competitive Markets P > MC P > min of ATC P = MC (always) P = min of ATC (long run) (Efficient Scale Production) Efficiency Review • Allocative Efficiency whenP = MC • 3 market structures fail as P > MC (monopoly, oligopoly, monopolistic competition) • Only Competitive firms are Allocatively Efficient • Production Efficiency whenP = min. of ATC • 3 market structures fail as P > min of ATC (efficient scale production) • Competitive Firms achieve it only in long run

3. New firms entering leads to: • Demand Curve shifts left • As your firm sells less! 2) Profit Declines 3) Entry stops when profit = zero Review: Monopolistic Competition SHORT RUN: Monopolistic Competition LONG RUN: Monopolistic Competition E1 --------------- P1 Profit -------------- ----------------- Q1

4. MC MC ATC ATC P P D = MR MR Demand Q Q = Efficient Efficient scale Scale - Gap betweenefficient scale production & qty produced Long Run Equilibrium Monopolistic vs. Perfect Competition Monopolistically Competitive Firm Perfectly Competitive Firm Price Price Qty Quantity 0 0

5. Perfect vs.Monopolistic Competition MONOPOLISTIC COMPETITION: • Profit in short run, zero L.R. • Many Firms • Excess capacity in long run • Production above minimum of ATC • No production efficiency • Price > MC • Some deadweight Loss • Incentive to advertise PERFECT COMPETITION: • Profit in short run, zero L.R. • Many Firms • No excess capacity in long run • Production at minimum of ATC • Production efficiency • Price = MC (allocatively efficient) • No deadweight Loss • No incentive to advertise

6. Practice Test

7. Strong Dollar http://www.npr.org/2015/03/12/392589994/analysts-mixed-on-whether-strong-u-s-dollar-is-positive-or-negative