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50- Equilibrium of Firm under Monopolistic Competition | Firm Equilibrium |short and long run Period - YouTube
Channel: Easy Learning Economics
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how are you
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welcome to easy learning economics today
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we are going to learn the ecology of
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firm
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under monopolistic competition so
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monopolistic competition
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is also a form of imperfect market and
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we completed
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the lecture on monopoly and types of
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monopoly now we are discussing
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equilibrium of firm under monopolistic
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competition in the shorter
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and long run period so in this lecture
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we learn what is the monopolistic
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computation
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and what are the features of
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monopolistic computation
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what are the advantages and
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disadvantages of monopolistic
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computation
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how does monopoly decide the price in
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output
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during short run and how does the firm
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earns super normal profit in the short
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run
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and how does farm earns the normal
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profit
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and how does in the short term the firm
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may on the sub normal profit
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and how in the long run price and output
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is determined under monopolistic
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competition
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so these are the lecture contents for
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today lecture
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through the notes on
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economic related topics which will be
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helpful for your exam so here
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i would like to also suggest my
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video monopoly price in output
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determination
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in the short run and long run period so
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here we start that what is monopolistic
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computation so monopolistic competition
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is a form of
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imperfect market where sufficient number
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of sailors compete with
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each other producing heterogeneous
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commodities
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identical to each other but not similar
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and is perfect substitute of each other
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so such product differences are
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artificially created
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in monopolistic competition the
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monopolies create the product difference
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artificially either by
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monogram size speaking color
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design weight so
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due to availability of substitute under
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monopolistic competition
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monopolist has a limited power
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each seller has little influence on
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price
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but can't control the market at all the
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monopolistic competition is most common
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form of market
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restaurant fast food outlets shoe stores
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drugstores
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beauty salons video rental stores and
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gasoline
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stations are common example of
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monopolistic competition
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monopolist exercise product variation
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and incur selling expenses in order to
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make its product more
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appealing to consumers what are the
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features of monopolistic competition
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here we discussed that the in
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monopolistic competition there are
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sufficient number of series it means
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many producers are present under
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monopolistic competition
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the monopolists are selling the
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heterogeneous product
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and third one that the all monopolists
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are firm engage in marketing and should
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spend more on product variation
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and selling efforts as long as the minor
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revenue from
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these efforts exceeds the marginal cost
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and until the minor revenue
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equals minor cost knowledge is
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widespread but not perfect under
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monopolistic competition
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brand loyalty exists making demand
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inelastic
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barriers to entry and axis do exist but
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are low
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producers are price maker and what are
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the advantages
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and disadvantages of monopolistic
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competition
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the monopolistic competition increases
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the choices for
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consumer due to availability of
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substitutes
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it is more efficient than monopoly
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there is no significant barrier to entry
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in market
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so the what are the disadvantages that
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as compared to the perfect competition
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prices are higher in case of
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monopolistic competition
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and firm increases income inequality by
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giving dividends to the wealthy
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shareholders
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amount spent on creating artificial
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differences in product can be used on
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other useful projects of society
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now we discuss that shortened price and
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output determination
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under monopolistic competition under
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monopolistic competition the firm faces
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negatively slow demand curve
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and demand curve is price elastic
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the best level of output in the short
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run it decided
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where the marginal revenue equals
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marginal cost
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provided that the price exceeds the
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average variable cost
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so as in the case of perfectly
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competitive firm
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the monopolistic competitor can earn
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profit
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break even or incur losses in the short
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run
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if at the best level of output the price
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is greater than
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average total cost the firm earns profit
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if price is equal to average total cost
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the firm stains at break even
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and if price is less than average total
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cost
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the firm incurs losses but it minimizes
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losses by producing
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as long as price is greater than average
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total cost
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so these are three possibilities that
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under monopolistic competition
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in the short run the firm may earn the
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standard profit more standard or less
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standard profit while in the long run
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the firm
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always earns the standard profit
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this is the diagram which shows that the
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firm is earning here super normal profit
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output has been shown on x-axis
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where as the cost in revenue has been
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shown on y-axis
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and by using the total revenue
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and total cost formula we may calculate
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here
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that the total revenue of the firm is
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o p q
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a this is the total revenue of the firm
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whereas the total cost of the firm is oc
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and qb it means this is the
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cost of the firm by deducting the oc
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oq from the opqa
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the reluctant or the portion which
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remains
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shows the super normal profit
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for the monopolist and the monopolist
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decides to produce the output where the
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marginal cost
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patches the marginal revenue from below
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so this is the point of equilibrium
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this is the output with the monopoly
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decide to produce
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oq so the total revenue
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is greater than total cost it means they
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have the monopolist
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earns the super normal profit
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and rectangle portion shows the super
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normal profit of the monopolist so
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we can say here that firm is earning
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super normal profit at equilibrium
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quantity
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firm achieves equilibrium where marginal
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revenue is equal to minor cost
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by using the total revenue total cost
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formula the super normal profit will be
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equal to
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o p q a minus o c
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q b is equal to p c a b
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so this is the portion which shows
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basically the super normal profit for
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the monopolist
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some of the firms may earn the normal
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profit during the short term
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from achieved equilibrium at point
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e where marginal cost touches the minor
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revenue from below
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and using the total revenue total cost
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formula that the total revenue of the
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firm
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is equal to opaq and total cost is also
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equal to opaq
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and the firm is earning normal profit
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here and the firm decide to produce the
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oq
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output so we can say here that hair farm
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is earning normal profit
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at equilibrium quantity from a cheese
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equilibrium where minor revenue is equal
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to marginal cost at
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equilibrium quantity average cost curve
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tangents to the average
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revenue curve so the average cost is
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equal to
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average revenue and using the formula
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total revenue total cost formula the
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total revenue of the firm
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is opaq and the total cost is also the
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opaq so the firm is earning zero
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economic profit
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however at this point the firm is
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recovering is explicit and implicit cost
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some of the funds might be under
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monopolistic competition in the short
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term may on the sub
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normal profit are less than standard
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profit so when you experience
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super sub normal profit it means that
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every total cost is greater than price
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so you can see here that the average
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total cost
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lies above the price so here
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the firm decides to produce oq
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this output every total cost is this
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and the firm price which decides to
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charge to the customers
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is this so this is the price which the
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firm charges
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so it means the price is less than
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average total cost
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so the firm earns
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sub normal profit or less standard
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profit at this quantity
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so here we can say that the firm is
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earning sub normal
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are less than standard profit at
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equilibrium quantity
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from achieving mother revenue touches
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the marginal cost
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so now we are discussing the long run
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price and output determination under
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monopolistic competition
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as we know that the long run is the
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period during which all costs are
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variable
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and short term in the period during with
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the sum of the input remain fixed so
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under long run
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all costs are variable and the firm can
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choice whatever she decides
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so it means the firm can increase the
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machines
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change the place everything so all costs
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are variable in the long run
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and the long run the firm always
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achieves the normal profit
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so you can see here that the output is
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shown on
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x axis whereas the cost in revenue has
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been shown
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on y-axis the firm decides to produce
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the
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oq output at price op
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so the firm achieves e-colibarium at
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this point
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the marginal cost touches the marginal
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revenue and the average cost equal to
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the average revenue
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so under long run all firms under
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monopolistic competition
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earns the normal profit at equilibrium
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quantity and produce
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continuously as long as the marginal
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revenue is greater than marginal cost
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so firm achieves equilibrium always
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where minor revenue is equal to manual
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cost
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so at equilibrium quantity average cost
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curve tangents to the average revenue
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that's why the average cost is equal to
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average revenue
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so by using the total revenue total cost
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formula the total revenue of the firm
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here is opaq and whereas the total cost
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is opaq it means there is also zero
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economic profit it means the firm
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is earning normal profit and the
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firm recovers all its explicit and
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implicit cost
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at this point so i hope that the
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monopolistic competition would be clear
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to all of you
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please keep me posted about your
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feedback if you like and see
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fit this video please click the
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subscribe button
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i wish you would be successful in your
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career thank you very much for watching
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