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Monopolistic Competition
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firms are "price setters". they set prices ABOVE marginal cost P>MC
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Positive Profit
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Profit=ATC ( average total cost ) curve is BELOW the Demand Curve
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Free entry and exit of firms in monopolistic competition market
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guarantees that both "economic profits and economic losses disappear in the LONG RUN"
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Identify firm in monopolistic competition market doing its best but still losing money
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loss bearing firms have average total cost curve ABOVE the demand curve
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Be able to identify the firm that is earning ZERO economic profit
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ATC curve tangents the demand curve
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In the LONG RUN, monopolistically competitive firms produce a quantity that is "less than efficient scale"
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efficient scale is the intersection of the marginal cost and the average total cost, these firms produce at quantities less than this amount
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Monopolistically competitive firms have EXCESS CAPACITY
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to maximize profits, they will "maintain the excess capacity"
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Advertising that uses celebrity endorsements are most likely intended to
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provide a signal of product quality (if a superstar uses it, it must be good)
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If a firm in a monopolistic competitive market successfully uses advertising to decrease elasticity of demand for its product,
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the firm will be able to INCREASE its markup over Marginal Cost
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