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1717Monopolistic Competition

Figure 1 The Four Types of Market Structure

• Tap water• Cable TV

Monopoly(Chapter 15)

• Novels• Films

MonopolisticCompetition(Chapter 17)

• Tennis balls• Crude oil

Oligopoly(Chapter 16)

Number of Firms?

Perfect

• Wheat• Milk

Competition(Chapter 14)

Type of Products?

Identicalproducts

Differentiatedproducts

Onefirm

Fewfirms

Manyfirms

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Figure 1 Monopolistic Competition in the Short Run

Quantity0

Price

Profit-maximizing

quantity

Price

Demand

MR

ATC

(a) Firm Makes Profit

Averagetotal cost

Profit

MC

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Figure 1 Monopolistic Competitors in the Short Run

Demand

Quantity0

Price

Price

Loss-minimizing

quantity

Averagetotal cost

(b) Firm Makes Losses

MR

LossesATC

MC

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Figure 2 A Monopolistic Competitor in the Long Run

Quantity

Price

0

DemandMR

ATC

MC

Profit-maximizingquantity

P = ATC

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Figure 3 Monopolistic versus Perfect Competition

Quantity0

Price

Demand

(a) Monopolistically Competitive Firm

Quantity0

Price

P = MC P = MR(demand

curve)

(b) Perfectly Competitive Firm

MCATC

MCATC

MR

Efficientscale

P

Quantityproduced

Quantity produced =Efficient scale

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Figure 3 Monopolistic versus Perfect Competition

Quantity0

Price

Demand

(a) Monopolistically Competitive Firm

Quantity0

Price

P = MC P = MR(demand

curve)

(b) Perfectly Competitive Firm

mark-up

MCATC

MCATC

MR

Marginalcost

P

Quantityproduced

Quantity produced

Copyright © 2010 South-Western

Figure 3 Monopolistic versus Perfect Competition

Quantity0

Price

Demand

(a) Monopolistically Competitive Firm

Quantity0

Price

P = MC P = MR(demand

curve)

(b) Perfectly Competitive Firm

mark-up

Excess capacity

MCATC

MCATC

MR

Marginalcost

Efficientscale

P

Quantityproduced

Quantity produced =Efficient scale

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