Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 16 of 36 - Monopolistic Competition
Section 5 of 15
…
Figure 2 – Monopolistic Competitors in the Short Run
Monopolistic competitors maximize profit, or minimize loss by producing the quantity at which marginal revenue (MR) equals marginal cost (MC).
The firm in panel (a) makes a profit because price at quantity A is above average total cost (ATC).
The firm in panel (b) makes a loss because price at quantity B is below ATC.
…
In a monopolistically competitive market in the short run each firm is in some ways like a monopoly.
Each firm’s product is different from those offered by others so it faces a downward-sloping demand curve.
The monopolistically competitive firm follows a monopolist's rule for profit maximization.
It chooses to produce the quantity where MR equals MC.
Then it determines and uses its demand curve to find the price for that quantity.
For a refresher about how MR and MC are developed and interact see example Table A.
…
Figure 2 shows two typical firms in the short run, their MC, ATC, demand, and MR curves.
The two firms are in different monopolistically competitive industries.
In both panels, firms (a) and (b) the profit-maximizing or loss-minimizing quantity is found at the intersection of the MR and MC curves.
In panel (a) price is above ATC, so the firm makes a profit.
In panel (b) price is below ATC, making a loss the best the firm can do is to minimize its loss.
…
The short-run situations of Figure 2 do not last long.
When firms are making profits, as in panel (a) new firms have an incentive to enter the market.
This entry increases the number of similar products from which customers can choose.
This reduces the demand faced by firms previously in the market.
Each firm now supplies a smaller percent of the total market supply, which shifts the demand curves faced by the firms earlier in the market to the left.
As the demand for earlier firms' products fall these firms’ economic profits are eventually reduced to break-even or losses.
…
When firms are making losses, as in panel (b) earlier firms have an incentive to exit the market.
This exit decreases the number of products from which customers can choose.
This increases demand for the products of each firm remaining in the market shifting their demand curves to the right.
As the demand for remaining firms' products rises these firms’ economic losses are eventually reduced resulting in break-even or profits.
… …
eventual result
saishū kekka
最終結果

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