Econ Theory
1. b) There is a discrepancy between the price at which a good sells and the minimum average total cost of a good’s production under monopolistic competition and not under pure competition. Unlike in a purely competitive scenario, the price and average total costs in a monopolistically competitive firm exceed the minimum average total cost at which the good could be produced. In a monopolistic competition less is produced at a higher price, which would cause substitution in a perfectly competitive market because there is no variety. Under monopolistic competition, however, there is a trade-off for less production and higher prices, because there is a variety in the products available and people want variety and are willing to pay a higher price to obtain it.2. A monopolistically competitive firm moves towards equilibrium by setting the marginal revenue equal to the marginal cost and selling that quantity for the price given on its demand curve. At this point, the pri
5. A monopoly and a monopolistically competitive model calculate profits and make output decisions similarly, initially. When the models are extended into the next time period they become different because monopolistically competitive industries have attracted new firms to their market. Entry into the entry causes the market share of the firms to decrease the demand curve to shift to the left, prices to decrease, and profits to decrease. This affects all the calculations made in question number four. This is different because unlike monopolistically competitive industries, a monopoly has barriers to entry and no other firms compete with the profit maximizing price. The only changes in a monopoly are demand related. Profit = ($16.00)(15) – ($14.00)(15) = $45.00 Even though there is no incentive at equilibrium for entry or exit, “equilibrium” is never really evident because as soon as a firm sees that profits are heading to zero there are options they can take
Some topics in this essay:
,
Cost Profit,
Total Cost,
Maximizing Quantity,
average total,
average total cost,
total cost,
demand curve,
monopolistically competitive,
curve price,
profit =,
monopolistic competition,
price demand curve,
Average Total,
price average total,
market share,
marginal cost,
firm industry,
willing pay price,
equal marginal cost,
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Approximate Word count = 659
Approximate Pages = 3 (250 words per page double spaced)
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