Monopolistic Competition - AP Microeconomics

Price is greater than marginal cost. Market power allows pricing above marginal cost.

Entry and exit of firms. Market forces eliminate above-normal profits over time.

$TR = P \times Q$. Total revenue equals price multiplied by quantity sold.

The demand curve. Each firm faces its own downward-sloping demand curve.

$MR < D$. Downward-sloping demand makes marginal revenue less than price.

$MR = MC$. Standard profit-maximizing rule for all market structures.

Producing below minimum ATC. Firms don't operate at the efficient scale of production.

To differentiate products. Creates perceived differences to build customer loyalty.

Higher average costs. Underutilized capacity increases per-unit production costs.

Allocative efficiency. Price exceeds marginal cost, creating deadweight loss.

$MR < D$. Downward-sloping demand makes marginal revenue less than price.

Firms can earn profits or losses. Fixed costs prevent immediate market adjustments.

Profits decrease. Similar products reduce competitive advantage and pricing power.

Based on product differentiation. Unique features allow premium pricing above competitors.

Prices may increase. Reduced competition allows remaining firms more pricing power.

Some pricing power. Can charge above marginal cost without losing all customers.

Greater variety of products. Product differentiation creates diverse consumer options.

Increased market share. Differentiation attracts customers from competitors.

Advertising and service. Competition through quality, service, and brand building.

Reduces elasticity of demand. Customer loyalty makes demand less responsive to price.

Profits decrease. Additional competition reduces demand for existing firms.

It is lower. Inefficiency from pricing above marginal cost reduces surplus.

Price equals average cost. Zero economic profit condition in long-run equilibrium.

Upward sloping. Reflects increasing variable costs as output expands.

Average Total Cost (ATC) curve. Long-run equilibrium condition where price equals average cost.

Maximize profit. Standard objective for firms in any market structure.

Firms enter or exit until zero profit. Free entry and exit drive economic profits to zero.

To differentiate products. Competition beyond price through quality and features.

Increases consumer choice. Product differentiation offers more options to consumers.