Monopolistic Competition Bare Bones Notes Demand Curves The firm faces two demand curves The firms

demand curve (the so-called dd curve) shows how much the firm can sell, holding fixed the prices of all competing firms The fractional industry demand curve (the so-called DD curve) shows how much the firm can sell when all firms raise and lower prices in tandem

Short-run Equilibrium Each firm maximizes profits along its dd curve The !" # condition implies
P= MC $ , $+ d

where d (which is a num%er less than &) denotes the price elasticity of demand along the firms demand curve' Long-run Equilibrium (et )T# denote the firms long-run average cost (including a cost of capital)' *n the longrun if + , )T#, firms enter' *f + - )T# firms exit' Thus, the conditions for long-run e.uili%rium are
P= MC $ $+ d P = ATC

These two conditions /ointly determine the e.uili%rium price and the e.uili%rium num%er of firms'

+rice

DD The two demand curves

dd 0uantity +rice

)T# dd

Long-run Equilibrium

dd 0uantity