product differentiaation Flashcards
what is a differentiated product
close but not perfect subs
Effect of price rising for product on quantity demanded
The demand decreases
Barriers of entry in the long run for Mono Comp?
No
Is collusion possible in perf comp?
No
Main assumption of mono comp
Firms sell products that are very close subs
Maximum profits in SR?
MR = MC P = Pd (P > MC)
Do firms earn any profit in the LR?
No
Does Mono comp generate DWL? Why?
Yes, because P > MC
Differences between perfect comp and mono comp?
- Perfect Comp produces the quantity at minimum ATC
Mono Comp products less than than the minimum ATC
Why are profits equal to zero in the LR?
The demand curve a firm is facing is tangent to its average cost curve
In monopolistic competition it is possible that the equilibrium number of firms is bigger or smaller than the optimal one, depending on:
What consumers are willing to pay for more VARIETY
In monopolistic competition, the entry of new firms will positively affect the consumers, since:
Prices will drop and variety will increase
