Micro 4.4 Monopolistic Competition

[@alimadi9053]

We are super blessed to have you here on youtube THANKS.

[@ReviewEcon]

You're very welcome! Good luck on your exams! 😄

[@gummi3128]

Thank you so much:) This video is extremely helpful compared to the other ones I've watched because they always go so fast. You, however, focus on the details and explain everything in depth so its a lot easier to follow along. You literally don't understand how much youve helped me as an online student

[@ReviewEcon]

You're very welcome! Thank you for sharing your experience! Good luck with your studies!

[@arranmcentaggart6861]

Man, I hope you know that you are in incredible teacher. I'm an Irish Leaving Certificate student and these help my Economics so much! I hope to see your channel continue to grow man. Thank you.

[@ReviewEcon]

Thank you for those kind words! You're very welcome and good luck with your studies!

[@Boggesso]

It took me the entire school year to notice your earrings. I really mess with them! Also...thanks for the econ support. Hope to see you again in college:)

[@ReviewEcon]

😄 You're very welcome! Good luck on your exams!

[@froggy5851]

I really appreciate the detail of the vids 🙏🙏 You and Clifford are the only things making me pass. Also, could you explain why monopolies don't have excess capacity but firms in monopolistic competition do? Thank youuu

[@ReviewEcon]

On the graph, both refer to producing a quantity on the downward sloping portion of the ATC. For monopolies, their ATC is also the long run ATC due to high barriers to entry and economies of scale are a long run term. For monopolistically competitive firms, the ATC is the short run ATC because there are low barriers to entry. Most monopolistically competitive firms like restaurants, have workers and raw materials going unused. If the firm produced higher quantities of output, they could put those resources to good use and produce more output with those unused resources. That would decrease their average total costs, but monopolistically competitive firms choose not to use their unused resources (thus the term excess capacity) because increasing production would mean they have to lower their price (since they face it downward sloping demand curve) and it would reduce profit if they produce at the minimum of the ATC.

[@froggy5851]

Ohhhhh I think I get it now, so monopolies are in the long run and in economies of scale so they don't have as much of unused resources and thus do not have excess capacity, right? Also, is there a difference between underproducing and excess capacity?

[@ReviewEcon]

The phrase "under producing" is generally referencing producing less than the allocatively efficient (or socially optimal) output where price (demand) equals marginal cost, well, excess capacity means producing less than the productively efficient quantity where ATC equals MC

[@froggy5851]

Oh ok thank you again, and just to make sure, monopolies do NOT have excess capacity right?

[@ReviewEcon]

Excess capacity refers to a business being able to produce more with their idle resources, thus lowering average costs. It is certainly possible a monopoly could have excess capacity, but for the purposes of the AP exam, excess capacity is used to describe monopolistically competitive firms producing on the downward sloping ATC while that is called economies of scale for monopolies (for the reasons outlined above).

[@MelissaFortune]

You are such a godsend thank you so much!!

[@ReviewEcon]

You're very welcome! 😄

[@MelissaFortune]

@@ReviewEcon I finally passed it

[@ReviewEcon]

@MelissaFortune congratulations! 🎊🎉🤘😎

[@Jason-o5s]

Cheer~~~relating to a person or business that has exclusive possession or control of the supply of or trade in a commodity or service.😊

[@ReviewEcon]

Are you asking a question? I'm not sure I understand. But this sounds more like a description of monopoly rather than monopolistic competition.

[@cokim-qf2lr]

I owe you so much!!!

[@ReviewEcon]

Good luck with your exams! 😄

[@prithulbaveja4501]

It's a crime that he didn't have a Hershey's bar in the list of chocolates

[@ReviewEcon]

🚓🚔🚨😅

[@exojayy]

keep it up jacob 👏🏽👏🏽

[@ReviewEcon]

I definitely will!! 😎🤘

[@Mouath99]

what is the difference between monopoly graph and monopolistic comp. graph?

[@ReviewEcon]

The graphs for typical firms are identical. 😄

[@asmamawmulugeta8361]

Why AR,P and D are equal? Please rapidly this answer

[@ReviewEcon]

Price is the maximum amount per unit a firm can sell at. Demand is the highest amount consumers are willing to pay for a particular quantity. P=D because the highest price a firm can sell at equals the highest price consumers are willing to pay. As for AR, that is average revenue. It comes from total revenue which is price times quantity. Average revenue is total revenue/quantity. That means AR will equal the price. Check that math if you'd like. AR will always equal P when TR is PxQ and AR is TR/Q. I hope that helps!

[@YingYing-mu3po]

Hi! Your videos are very helpful but does advertisement only shift the demand curve and not the ATC although it is part of the fixed cost category?

[@ReviewEcon]

Fixed Costs are included in the ATC.if advertising is successful, it will shift both the ATC up and the Demand/MR right. I hope that helps!

[@YingYing-mu3po]

got it, thank you so much!@@ReviewEcon

[@hAILeyson]

Hi, I'm a little confused about the changes in fixed cost. You said it's only going to shift the ATC but is it still the case if the firm advertised? Will the Demand curve also shift upwards in addition to the ATC curve? Thank you!

[@ReviewEcon]

Great question! It depends. Advertising is a fixed costs and moves the ATC, butt not the MC. If the advertising is successful, it will also shift the demand curve to the right (along with the MR). If the advertising is not, successful, then the demand curve (and MR) wouldn't move. It's even possible for the demand curve (and MR) to shift left if an advertisement campaign causes a backlash (think about what happened with Bud Light). So I'd say it depends on what a particular question is asking on your exam. I hope that helps!