329 Some things to keep in mind (268/160) -- Microeconomics

329 Some things to keep in mind There is quite a lot in Chapters 9 and 10. Here are some basics to keep in mind: Regarding Monopolistic Competition: - There are many firms producing similar, but slightly differentiated, output. (Big Macs and Whoppers). Brand image and loyalty is key. - Firms have some control over price and output decisions. In order to sell more, firms must lower price. Therefore, marginal revenue is below price. - The profit maximizing rate of output is where MC = MR. - There are few barriers to entry. - Economic profits are possible in the short run, but will disappear as firms enter the industry. - No firm will ever produce at minimum average cost, so there is some inefficiency. Regarding Monopoly: - Barriers to entry keep other competitors away. - Monopolies face downward sloping demand. To sell more they must lower price. - Profit max rate of output is where MC = MR. - Long run economic profits are possible. - Monopolies can lose money. - Monopolies grow very large so there may be benefits from monopoly power as economies of scale are realized. “Original document by Peter Turner licensed CC BY”