1. Copyright © 2006 Thomson Learning 17 Monopolistic Competition

2. Figure 1 The Four Types of Market Structure Copyright © 2004 South-Western Tap water Cable TV Monopoly (Chapter 15) Novels Films Monopolistic Competition (Chapter 17) Tennis balls Crude oil Oligopoly (Chapter 16) Number of Firms? Perfect Wheat Milk Competition (Chapter 14) Type of Products? Identical products Differentiated products One firm Few firms Many firms

3. Figure 1 Monopolistic Competition in the Short Run Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Profit- maximizing quantity Price Demand MR ATC (a) Firm Makes Profit Average total cost Profit MC

4. Figure 1 Monopolistic Competitors in the Short Run Copyright©2003 Southwestern/Thomson Learning Demand Quantity 0 Price Loss- minimizing quantity Average total cost (b) Firm Makes Losses MR Losses ATC MC

5. Figure 2 A Monopolistic Competitor in the Long Run Copyright©2003 Southwestern/Thomson Learning Quantity Price 0 Demand MR ATC MC Profit-maximizing quantity P =ATC

6. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm MC ATC MC ATC MR Efficient scale P Quantity produced Quantity produced = Efficient scale

7. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm mark-up MC ATC MC ATC MR Marginal cost P Quantity produced Quantity produced

8. Figure 3 Monopolistic versus Perfect Competition Copyright©2003 Southwestern/Thomson Learning Quantity 0 Price Demand (a) Monopolistically Competitive Firm Quantity 0 Price P=MCP=MR (demand curve) (b) Perfectly Competitive Firm mark-up Excess capacity MC ATC MC ATC MR Marginal cost Efficient scale P Quantity produced Quantity produced = Efficient scale