Economics Winter 14 April 7 th, 2014 Lecture 32 Ch. 14: Monopolistic competition

FINAL EXAM is based on chapters 3, 4, 5 (up to p. 116), 6 (up to p. 138), 8, 9, 10 (up to p. 230, 11, 12, 13, and 14 Its format: 100 Multiple-Choice Questions When and Where: April 21, from 7:00 p.m. to 10:00 p.m; STM 140 Extra Office Hours: April 19, from 1:00 p.m. to 3:00 p.m. Final Exam:

Monopolistic competition: Long Run

Capacity Output and Excess Capacity A firm’s Capacity Output is the output at which average total cost is a minimum — the output at the bottom of the U-shaped ATC When a firm has Excess Capacity, it produces a smaller output than that which minimizes average total cost.This means consumers pay a price exceeding minimum average total cost Excess capacity is measured by the gap between present profit maximizing output and the output that coincides with minimum average cost (i.e., perfectly competitive outcome)

Advertising Expenditures

If advertising increases the quantity sold by a large enough amount, it can lower average total cost.

EXTRA STUDY QUESTION: time permitting