Hen 368 lecture 9 structure, conduct, performance, and market analysis

Health Economics Lecture 9

Structure, Conduct, Performance, and Market

Analysis

Objectives

Objectives

SCP Paradigm

Objectives

SCP ParadigmPerfect Competition

Objectives

SCP ParadigmPerfect Competition

Monopoly

Objectives

SCP ParadigmPerfect Competition

MonopolyBrand Competition

Objectives

SCP ParadigmPerfect Competition

MonopolyBrand Competition

Oligopoly

Structure, Conduct, and Performance

Basic Conditions

Basic ConditionsSupply

Basic ConditionsSupply

Technology

Basic ConditionsSupply

Technology

Unionization

Basic ConditionsSupply

Technology

Unionization

Legal Environment

Basic ConditionsSupply

Technology

Unionization

Legal Environment

Economies of Scale

Basic ConditionsSupply

Technology

Unionization

Legal Environment

Economies of Scale

Demand

Basic ConditionsSupply

Technology

Unionization

Legal Environment

Economies of Scale

Demand

Price Elasticity

Basic ConditionsSupply

Technology

Unionization

Legal Environment

Economies of Scale

Demand

Price Elasticity

Demand Conditions

Market Conditions

Market ConditionsNumber, type, size distribution of sellers and payers

Market ConditionsNumber, type, size distribution of sellers and payers

Type of Product

Market ConditionsNumber, type, size distribution of sellers and payers

Type of Product

Barriers to Entry

Market ConditionsNumber, type, size distribution of sellers and payers

Type of Product

Barriers to Entry

Information Asymmetry

Objectives

ObjectivesProfit Maximization

ObjectivesProfit Maximization

Quantity Maximization

ObjectivesProfit Maximization

Quantity Maximization

Quality Maximization

ObjectivesProfit Maximization

Quantity Maximization

Quality Maximization

Discretionary Spending

ObjectivesProfit Maximization

Quantity Maximization

Quality Maximization

Discretionary Spending

Other

Public Policy

Public PolicyTaxes and Subsidies

Public PolicyTaxes and Subsidies

Antitrust Regulations

Public PolicyTaxes and Subsidies

Antitrust Regulations

Price Regulations

Public PolicyTaxes and Subsidies

Antitrust Regulations

Price Regulations

Certificate of Need Laws

Public PolicyTaxes and Subsidies

Antitrust Regulations

Price Regulations

Certificate of Need Laws

Peer Review Organizations

Conduct

ConductPrice Behavior

ConductPrice Behavior

Product Promotion

ConductPrice Behavior

Product Promotion

Research and Development

Performance

PerformanceProduction and Allocation Efficiency

PerformanceProduction and Allocation Efficiency

Equity

PerformanceProduction and Allocation Efficiency

Equity

Technological Progress

Market Structures

Market StructuresPerfect Competition

Market StructuresPerfect Competition

Monopoly

Market StructuresPerfect Competition

Monopoly

Monopolistic Competition

Market StructuresPerfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Market Structure and Power

0% 100%

Market Structure and Power

0% 100%

Number of Firms

Type of Product

Ease of Entry

Demand

Examples

Market Structure and Power

0% 100%

Number of Firms

Type of Product

Ease of Entry

Demand

Examples

Perfect Competition

Many

Identical

Easy

D = MR

Commodities Rice

Apples

Market Structure and Power

0% 100%

Number of Firms

Type of Product

Ease of Entry

Demand

Examples

Perfect Competition

Many

Identical

Easy

D = MR

Commodities Rice

Apples

Monopolistic Competition

Many

Different

Easy

Dynamic

Cell Phones

Market Structure and Power

0% 100%

Number of Firms

Type of Product

Ease of Entry

Demand

Examples

Perfect Competition

Many

Identical

Easy

D = MR

Commodities Rice

Apples

Monopolistic Competition

Many

Different

Easy

Dynamic

Cell Phones

Oligopoly

Few

Similar

Substantial

Game Theory

Market Structure and Power

0% 100%

Number of Firms

Type of Product

Ease of Entry

Demand

Examples

Perfect Competition

Many

Identical

Easy

D = MR

Commodities Rice

Apples

Monopolistic Competition

Many

Different

Easy

Dynamic

Cell Phones

Oligopoly

Few

Similar

Substantial

Game Theory

Monopoly

One

Unique

Blocked

D > MR

Utilities Government

Market Structure and Power

0% 100%

Perfect Competition

Perfect CompetitionMany Sellers

Perfect CompetitionMany SellersMany Buyers

Perfect CompetitionMany SellersMany BuyersNo barriers

Perfect CompetitionMany SellersMany BuyersNo barriers

Same product

Perfect CompetitionMany SellersMany BuyersNo barriers

Same productTiny share

Q

$

Perfect Competition

Q

$

Perfect Competition

Demand =

MRPrice

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

QProductively

Efficient

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

QProductively

Efficient

Average Costs

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

QProductively

Efficient

Average Costs

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

QProductively

Efficient

Average Costs

Q

$

Perfect Competition

Demand =

MRPrice

Marginal Costs

QProductively

Efficient

Average Costs

Profit

Monopoly

Monopoly

Only One Seller No Close Substitutes

Barrier to Entry

Barriers to Entry

Barriers to Entry

Government Protection Key Resource

Network Externalities Economies of Scale

Patents !

!

Copyrights

Patents !

!

Copyrights

20 Years !

!

Lifetime plus 70 Years

Franchise

Franchise

Exclusive Legal Provider

New Drugs

New Drugs

10 Years of Testing before Approval

!

10 Years of Monopoly

Network Externalities

Network Externalities

The more who use it !

The more valuable it becomes

Natural Monopoly

Natural Monopoly

One firm can supply entire market at a lower average cost than two or

more firms

Natural Monopoly

Natural Monopoly

The more I make the lower my costs

!

Large Fixed Costs

Is competition always good?

Is competition always good?

Sometimes it can lead to higher prices

Monopoly Output and Price

Monopoly Output and Price

Lower Price:

Good: Sell More

Bad: Less Revenue Per Unit

Perfect Competition

Perfect Competition$

Quantity

P

Perfect Competition$

Quantity

Demand=MR

P

Perfect Competition

Marginal Cost MC

$

Quantity

Demand=MR

P

Perfect Competition

Marginal Cost MC

$

Quantity

Demand=MR

Q

P

Perfect Competition

Marginal Cost MC

$

Quantity

Demand=MR

Q

P

Perfect Competition

Marginal Cost MC

$

Quantity

Demand=MR

Total Revenue

Q

P

Perfect Competition

Marginal Cost MC Average Cost

ATC

$

Quantity

Demand=MR

Total Revenue

Q

P

Perfect Competition

Marginal Cost MC Average Cost

ATC

$

Quantity

Demand=MR

Total Revenue

Q

P

Perfect Competition

Marginal Cost MC Average Cost

ATC

Total Cost

$

Quantity

Demand=MR

Q

P

Perfect Competition

Marginal Cost MC Average Cost

ATC

Total Cost

$

Quantity

ProfitDemand=MR

Perfect Competition

Demand

Perfect Competition

Demand

MR

Perfect Competition

Demand MR=

Perfect Competition

Demand MR

Monopoly

Demand

MR

Monopoly

Demand

MR

Monopoly

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

$3

$6

$9

$12

$15

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

$3

$6

$9

$12

$15

$3

$3

$3

$3

$3

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

$3

$6

$9

$12

$15

$3

$3

$3

$3

$3

$5

$4

$3

$2

$1

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

$3

$6

$9

$12

$15

$3

$3

$3

$3

$3

$5

$4

$3

$2

$1

$5

$8

$9

$8

$5

Perfect Competition Monopoly

Q D TR MR D TR MR

1

2

3

4

5

Monopoly: To get more Quantity must lower price

$3

$3

$3

$3

$3

$3

$6

$9

$12

$15

$3

$3

$3

$3

$3

$5

$4

$3

$2

$1

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Demand

Perfect Competition

Demand MR=

Perfect Competition

Demand

MR

Monopoly

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

Qty

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5 1

Qty

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5 1

Qty

$5

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5 1

Qty

$5 $5

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5 $5

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

Lose Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

Lose

Lose

-$1

Gain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

LoseG

ain

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

LoseG

ain

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

LoseG

ain

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$4

1

2

Qty

$5

$8

$5

$3

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$5

$3

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$9

$5

$3

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$9

$5

$3

$1

Lose

-$1

Gain

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$9

$5

$3

$1

Lose

-$2

-$1

Gain

$4

Lose

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$9

$5

$3

$1

Lose

-$2

-$1

Gain

$3

$4

LoseG

ain

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

1

3

2

Qty

$5

$8

$9

$5

$3

$1

Lose

-$2

-$1

Gain

$3

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$5

$3

$1

Lose

-$2

-$1

Gain

$3

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$8

$5

$3

$1

Lose

-$2

-$1

Gain

$3

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$8

$5

$3

$1

-$1

Lose

-$2

-$1

Gain

$3

$4

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$8

$5

$3

$1

-$1

Lose

-$2

-$1

-$3

Gain

$3

$4

Lose

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$8

$5

$3

$1

-$1

Lose

-$2

-$1

-$3

Gain

$3

$4

$2

LoseG

ain Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

1

3

2

4

Qty

$5

$8

$9

$8

$5

$3

$1

-$1

Lose

-$2

-$1

-$3

Gain

$3

$4

$2

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$3

$1

-$1

Lose

-$2

-$1

-$3

Gain

$3

$4

$2

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

Lose

-$2

-$1

-$3

Gain

$3

$4

$2

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

Gain

$3

$4

$2

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

Lose Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

LoseG

ain Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Monopoly

Price

1 3

$5

$3

$4

$2

$1

$02 4 5

Price Qty TR MR

$5

$3

$4

$2

$1

1

3

2

4

5

Qty

$5

$8

$9

$8

$5

$5

$3

$1

-$1

-$3

Lose

-$2

-$1

-$3

-$4

Gain

$3

$4

$2

$1

Demand

Marginal Revenue MR

Monopoly$

Q

Monopoly$

Q

Demand

Marginal Revenue MR

Monopoly$

Q

Demand

Marginal Cost MC

Marginal Revenue MR

Monopoly$

Q

Demand

Marginal Cost MC

Marginal Revenue MR

Monopoly$

Q

Demand

1. MR=MC?

Marginal Cost MC

Marginal Revenue MR

Monopoly$

Q

Demand

1. MR=MC?

Marginal Cost MC

Q

Marginal Revenue MR

Monopoly$

Q

Demand

1. MR=MC?

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly$

Q

Demand

1. MR=MC?

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly$

Q

Demand

1. MR=MC?2. TR= P x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

$

Q

Demand

1. MR=MC?2. TR= P x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Profit

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Profit

Demand

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Profit

Demand

Consumer Surplus

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Profit

Demand

Consumer Surplus

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Marginal Cost MC

Q

P

Marginal Revenue MR

Monopoly

Average Cost ATC

Cost

$

Q

Profit

Demand

Deadweight Loss

Consumer Surplus

1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q

Antitrust Laws

Antitrust Laws

Collusion

Felony

Monopolistic Competition

Monopolistic Competition

Brands competing with each other.

Differentiating products

Pay more for more choices

Q

$

D

MR

Monopoly

Q

$

D MR=Perfect Competition

Q

$

Monopolistic Competition

DMR

Short Run

Q

$

Monopolistic Competition

DMR

Short Run

Steep Demand

Q

$

Monopolistic Competition

DMR

Short Run

Long Run

Steep Demand

Q

$

Monopolistic Competition

DMR

Short Run

Long Run

Steep Demand

Q

$

Monopolistic Competition

DMR

Short Run

Long Run

Steep Demand

Demand Flattens

Q

$Short Run

DMR

Monopolistic Competition

Q

$Short Run

DMR

MC

Monopolistic Competition

Q

$Short Run

DMR

MC

Monopolistic Competition

Q

$Short Run

DMR

MC

QS

Monopolistic Competition

Q

$Short Run

DMR

MC

QS

Monopolistic Competition

Q

$Short Run

DMR

MC

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATC

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATC

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATC

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATC

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATCProfit

QS

PS

Monopolistic Competition

Q

$Short Run

DMR

MC

ATCProfit

High Price Large Quantity

QS

PS

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATCProfit

High Price Large Quantity

QS

PS

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QS

PSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QS

PSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QS

PSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QSQ

PSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QSQ

PSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

QSQ

PPSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

PPSDemand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Profit

Monopolistic Competition

Q

$Short Run

Long Run

DMR

MC

ATC

Profits disappear in the long run

due to competition

High Price Large Quantity

Lower Price Lower Quantity

QSQ

P

PS

L

L

Demand Flattens

Profit

Monopolistic Competition

D

MR

MC

Profits

D

MR

MC

Competition flattens the Demand Curve

and squeezes profits.

Q

$

Market Competition

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Long Run Demand

Long Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Long Run Demand

Long Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Long Run Demand

Long Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Long Run Demand

Long Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

Q

$

Market Competition

Short Run Demand

Short Run Marginal Revenue

Long Run Demand

Long Run Marginal Revenue

Marginal Costs

Average Total Costs

QSR

PSR

QLR

PLR