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Monopolistic Competition in the Long Run definitions

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  • Monopolistic Competition
    Market structure with many firms offering differentiated products and free entry and exit, leading to zero economic profit in the long run.
  • Perfect Competition
    Market structure where firms produce identical products and achieve minimum average total cost in the long run.
  • Economic Profit
    Surplus earned when total revenue exceeds total costs, eliminated in the long run by new entrants in competitive markets.
  • Average Total Cost
    Per-unit cost of production, including all fixed and variable expenses, equaled by price in long-run equilibrium.
  • Demand Curve
    Graphical representation showing how quantity demanded varies with price, becoming more elastic as substitutes increase.
  • Elasticity
    Degree of responsiveness of quantity demanded to price changes, heightened by increased availability of substitutes.
  • Substitutes
    Alternative products that consumers may choose, increasing competition and shifting demand leftward for existing firms.
  • Excess Capacity
    Situation where firms produce below the efficient scale, not reaching minimum average total cost, causing inefficiency.
  • Product Differentiation
    Strategy where firms modify offerings to stand out, sustaining profitability and preventing loss of market share.
  • Long Run Equilibrium
    State where price equals average total cost and economic profit is zero due to entry and exit of firms.
  • Marginal Revenue
    Additional income from selling one more unit, used to determine profit-maximizing output.
  • Marginal Cost
    Incremental expense incurred from producing one extra unit, guiding firms' output decisions.
  • Profit Maximizing Quantity
    Output level where marginal revenue equals marginal cost, determining the most lucrative production point.
  • Minimum Average Total Cost
    Lowest point on the average total cost curve, achieved only in perfect competition, not in monopolistic competition.
  • Entry and Exit
    Process where firms join or leave a market, adjusting supply and eliminating profits or losses in the long run.