The Monopolistically Competitive Firm In The Diagram Is

The bottom of the ac curve. Usually supernormal profit attracts new firms to enter the market but there are barriers.

Monopolistic Competition

In the short run both under monopoly and monopolistic competition the firm can enjoy super normal profits normal profits or can sustain losses.

The monopolistically competitive firm in the diagram is. Comparisons with the efficient structure of perfect competition. Key differences between monopoly and monopolistic competition. B faces a downward sloping demand curve for its product.

A profit maximizing firm in a monopolistically competitive market differs from a firm in a perfectly competitive market because the firm in the monopolistically competitive market a has no barriers to entry. A monopolistically competitive firm is producing at an output level in the short run where average total cost is 350 price is 300 marginal revenue is 150 and marginal cost is 150. The perfectly competitive firm is both allocatively efficient because price mc and productively efficient because the equilibrium output occurs at a level where mc ac.

As a single firm regulates the whole market there is no difference between firm and industry in the monopoly. Profit maximisation occurs where mrmc. The excess capacity problem means that monopolistically competitive firms typically produce at some point on the rising segment of their average total cost curve.

The greater the degree of product variation the greater is the excess capacity problem. Therefore the equilibrium is at qm pm. Short run profits and losses and long run equilibrium.

Point m this diagram shows how a monopoly is able to make supernormal profits because the price ar is greater than ac. On the other hand in monopolistic competition there is an unrestricted entry into and exit from the industry. But in the long run firm under monopolistic competition will enjoy only normal profits.

The greater the degree of product variation the lesser is the excess capacity problem. A monopolistically competitive firm might be said to be marginally inefficient because the firm produces at an output where average total cost is not a minimum. The monopolistically competitive firm illustrated in the diagram exhibits productive inefficiency because its profit maximizing output is not at the intersection of marginal cost and average total cost.

Hence monopolistically competitive firms maximize profits or minimize losses by producing that quantity where marginal revenue equals marginal cost both over the short run and the long run. Monopoly diagram short run and long run. A monopolistically competitive market is productively inefficient market structure because marginal cost is less than price in the long run.

So it is a single firm industry. If you look at the other diagram though.

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