Monopolistic competition and economic efficiency (Монополистическая конкуренция и экономическая)

Product differentiation makes this model different from pure competition model. Economic rivalry takes the form of non-price

Monopolistic competition and economic efficiency (Монополистическая конкуренция и экономическая)

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R and the price of a monopolistic competitor (on the graph it is marked as a line from A to B)- its is called a mark up. And the greater is this mark up, the greater is the monopolistic power of a firm. Because the demand curve is still downward sloping, the firm will not reach the long run equilibrium at the minimum point of the ATC curve. Average costs may also be higher than under pure competition, due to advertising and other costs involved in differentiation. If there were fewer firms in industry, each firm could produce the more effective scale of output, which would be better for consumers. This excess capacity is the "price" society must pay for product differentiation. In other words, the price differential paid by the consumer (price difference between perfect competition and monopolistic competition) is the "price" of product differentiation. But of course monopolistic competition provides us many good opportunities important for our wellbeing: the lure of economic profits causes firms to develop new or improve their old products in order to compete for customers with other producers of similar but not identical goods and services.

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