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Monopolistic Competition in the Long Run definitions

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  • Monopolistic Competition
    A market structure with many firms offering differentiated products and free entry and exit.
  • Long-Run Equilibrium
    A state where price equals average total cost and economic profit is eliminated due to firm entry and exit.
  • Average Total Cost
    The total cost per unit of output, including both fixed and variable costs, used to determine profit or loss.
  • Economic Profit
    The surplus remaining after subtracting all costs, including opportunity costs, from total revenue.
  • Product Differentiation
    The process of making a product distinct from competitors through features, branding, or quality.
  • Excess Capacity
    The gap between the profit-maximizing output and the output at minimum average total cost, indicating inefficiency.
  • Demand Curve
    A graphical representation showing the relationship between price and quantity demanded for a firm's product.
  • Elasticity
    A measure of how sensitive quantity demanded is to changes in price, increasing with more substitutes.
  • Marginal Revenue
    The additional income generated from selling one more unit of output.
  • Marginal Cost
    The increase in total cost resulting from producing one additional unit of output.
  • Entry
    The process by which new firms join a market, increasing competition and reducing profits.
  • Exit
    The process by which firms leave a market, often due to sustained losses.
  • Substitute
    A product that can replace another, increasing consumer choice and demand elasticity.
  • Profit-Maximizing Output
    The quantity where marginal revenue equals marginal cost, yielding the highest possible profit.
  • Tangent Condition
    A situation where the demand curve touches the average total cost curve at only one point, indicating zero profit.