🎛️ Market Parameters
Firm: MowTown Landscaping
Market: Suburban lawn-care services
Product: Differentiated (quality, reputation, reliability)
Marginal Cost: $30 per lawn (constant)
Market: Suburban lawn-care services
Product: Differentiated (quality, reputation, reliability)
Marginal Cost: $30 per lawn (constant)
📍 Long-run equilibrium (zero profit) occurs near:
FC = $400 → ~23 firms | FC = $800 → ~18 firms
FC = $1,200 → ~14 firms | FC = $2,000 → ~9 firms
FC = $400 → ~23 firms | FC = $800 → ~18 firms
FC = $1,200 → ~14 firms | FC = $2,000 → ~9 firms
📊 Firm Outcomes
Quantity (Q*)
—
lawns/month
Price (P*)
—
Economic Profit
—
Deadweight Loss
—
🔍 Market Analysis
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| Variable | Monopolistic Competition | Perfect Competition Benchmark |
|---|---|---|
| Price | — | — |
| Quantity | — | — |
| Revenue | — | — |
| Total Cost | — | — |
| Economic Profit | — | — |
| Deadweight Loss | — | |
| Markup (P − MC) | — | |
| Demand Curve | — | |
📚 Key Concept: Monopolistic Competition
In short-run equilibrium, MR = MC determines quantity. Price is read off the demand curve. Profit = (P − ATC) × Q.
In long-run equilibrium, free entry/exit drives economic profit to zero. The demand curve shifts until it is tangent to ATC — the "tangency condition." This creates excess capacity and a markup over marginal cost, causing deadweight loss.
Unlike perfect competition, long-run equilibrium does not occur at minimum ATC. The gap is the cost of product variety.