# AP Microeconomics Monopolistic Competition

Section 3: Market Structures: Lecture 5 | 26:54 min

Lecture Description

In this lesson, our instructor Jibin Park gives an introduction on monopolistic competition. He discusses the characteristics of monopolistic competition, profitable and unprofitable firms in monopolistic competition, long-run zero profit equilibrium, comparing perfect and monopolistic competition, and product differentiation and advertising.

Table of Contents

Section 1: Introduction

Intro to Economics

22m 40s

- Intro0:00
- Lesson Overview0:09
- Basic Economic Concepts1:07
- What is Economics?1:47
- Definition of Economics1:50
- Scarcity2:25
- Four Factors of Production (Resources)3:02
- Land3:26
- Labor3:43
- Capital4:02
- Entrepreneurship4:35
- Needs vs. Wants5:00
- Needs5:22
- Wants6:01
- People Choose8:46
- Need8:48
- Economics is About Making Choices8:59
- Every Choice Has a Cost9:29
- Opportunity Cost9:43
- Trade-Off9:55
- Positive Economics vs. Normative Economics10:23
- Positive Economics10:32
- Normative Economics11:13
- Marginal Analysis12:29
- All or Nothing Propositions12:48
- To Consume the Next Unit or Not12:52
- Key to Understanding Economics12:57
- Example 113:29
- Example 214:46
- Example 317:02
- Example 420:48

Production Possibilities Frontier

17m 47s

- Intro0:00
- Lesson Overview0:08
- I. Basic Economic Concepts0:48
- Production Possibilities Frontier1:23
- Points of Efficiency1:40
- Points of Underutilization1:43
- Famous 'Guns or Butter' Analogy2:20
- Increasing Opportunity Cost2:59
- Law of Increasing Opportunity Cost3:07
- Example: Economy of DVDs and Wine3:35
- Constant Opportunity Cost6:26
- Definition of Constant Opportunity Cost6:35
- Example: Economy of Soda and Flags6:50
- Example 19:35
- Example 211:06
- Example 312:54
- Example 414:19
- Example 516:28

Comparative Advantage & Trade

48m 19s

- Intro0:00
- Lesson Overview0:07
- I. Basic Economic Concepts0:45
- Trade and Specialization1:36
- I, Pencil3:29
- Market Economy4:28
- Command Economy5:02
- Mixed Economy5:46
- Absolute Advantage6:29
- Better at Producing a Particular Product6:35
- Example6:45
- Comparative Advantage9:09
- Lower Opportunity Cost in Producing a Particular Product9:17
- Example9:26
- Comparative Advantage & PPF Graph16:08
- Example 120:41
- Example 224:29
- Example 329:13
- Example 432:52
- Example 537:46
- Example 643:39

Utility Maximization

31m 21s

- Intro0:00
- Lesson Overview0:14
- I. Basic Economic Concepts0:47
- Utility vs. Marginal Utility2:18
- Utility2:22
- Marginal Utility2:53
- Examples3:02
- Marginal Utility Per Dollar4:07
- Definition of Marginal Utility Per Dollar4:12
- Constrained by a Budget4:33
- Role of Scarcity4:35
- Diminishing Marginal Utility7:20
- Definition of Diminishing Marginal Utility7:24
- Krispy Kreme Experiment8:46
- Optimal Consumption Bundle9:59
- Optimal Consumption Bundle Rule10:02
- Select the Higher Marginal Utility Per Dollar10:34
- Value Begins to Fall10:42
- Example 111:04
- Example 214:15
- Example 318:16
- Example 421:13
- Example 524:09
- Example 627:50

Section 2: Supply & Demand

Price & Quantity

39m 7s

- Intro0:00
- Lesson Overview0:14
- II. Product Markets1:05
- Supply and Demand2:22
- Supply and Demand Model2:24
- Demand Curve2:28
- Supply Curve2:43
- Factors2:56
- Equilibrium Price and Quantity3:45
- Demand Schedule and Demand Curve3:56
- Market Demand Schedule3:59
- Market Demand Curve4:07
- Example4:18
- Shifts of the Demand Curve9:39
- Changes in the Prices of Related Goods9:47
- Changes in Income12:14
- Changes in Tastes12:57
- Changes in Expectations13:58
- Increase in Demand (Rightward Shift)14:44
- Decrease in Demand (Leftward Shift)15:37
- Supply Schedule and Supply Curve16:27
- Market Supply Schedule16:37
- Market Supply Curve16:46
- Example16:52
- Shifts of the Supply Curve20:19
- Changes in Input Prices20:29
- Changes in Technology20:43
- Changes in Expectations21:09
- Increase in Supply (Rightward Shift)21:41
- Decrease in Supply (Leftward Shift)22:51
- Supply, Demand, and Equilibrium23:45
- Equilibrium Price23:50
- Equilibrium Quantity23:57
- Equilibrium24:05
- Surplus and Shortage25:15
- Surplus25:19
- Shortage25:30
- Example25:43
- Example 129:26
- Example 230:18
- Example 331:37
- Example 434:11
- Example 536:37

Supply & Demand

25m 11s

- Intro0:00
- Lesson Overview0:13
- II. Product Markets0:57
- Shifts to the Demand or Supply Curve1:50
- Demand Shift to the Right1:55
- Demand Shift to the Left2:11
- Supply Shift to the Right2:27
- Supply Shift to the Left2:43
- Example 12:59
- Example 24:28
- Example 36:13
- Example 48:17
- Shifts of Both the Demand and Supply Curves10:05
- Demand and Supply Shift to the Right10:52
- Demand and Supply Shift to the Left11:15
- Supply Shift to the Left and Demand Shift to the Right11:52
- Supply Shift to the Right and Demand Shift to the Left12:17
- Example 513:44
- Example 617:14
- Example 719:21
- Example 821:43

Price Controls

27m 5s

- Intro0:00
- Lesson Overview0:12
- II. Product Markets1:01
- Why Price Controls are Inefficient1:51
- Price Controls3:10
- Price Ceiling3:34
- Price Floor3:41
- Effective Price Ceiling4:08
- Rent Control4:16
- Effective Price Ceiling Must be Below Equilibrium Price4:27
- How a Price Ceiling Causes Inefficiency6:36
- Inefficiency Allocation to Consumers6:50
- Wasted Resources7:20
- Inefficiently Low Quality7:51
- Effective Price Floor8:45
- Minimum Wage8:53
- Effective Price Floors Must be Above Equilibrium Price9:40
- Price Floor on Agricultural Products13:42
- 'Butter' Mountain16:09
- How a Price Floor Causes Inefficiency17:41
- Inefficiently Low Quantity17:47
- Wasted Resources18:11
- Inefficiently High Quality18:39
- Example 120:05
- Example 221:12
- Example 322:36
- Example 423:46
- Example 525:06

Price Elasticity of Demand

58m 45s

- Intro0:00
- Lesson Overview0:10
- II. Product Markets1:26
- What is Elasticity of Demand?2:37
- Definition of Price Elasticity of Demand2:40
- Ceteris Paribus3:35
- Elastic Demand6:57
- e>17:02
- Product is Price-Sensitive7:47
- Flat Demand Curve8:05
- Inelastic Demand12:02
- e<112:06
- Product is Not Sensitive to Price Change13:14
- Steep Demand Curve14:09
- Example 119:20
- Example 225:01
- Using the Midpoint Method to Find Elasticity30:40
- Own Price Elasticity31:22
- Absolute Value Removes Negative Sign32:20
- Example 332:38
- Example 438:37
- Factors That Determine Price Elasticity44:06
- Whether Close Substitutes are Available44:13
- Whether the Good is a Necessity or a Luxury44:48
- Time45:45
- Share of Income Spent of the Good46:32
- Price Elasticity Along the Demand Curve47:11
- Example 556:22

Income, Cross-Price & Supply Elasticities

39m

- Intro0:00
- Lesson Overview0:16
- II. Product Markets1:31
- What is Cross-Price Elasticity of Demand?2:57
- Definition of Cross-Price Elasticity of Demand3:01
- Formula3:16
- Substitutes6:24
- Definition of Substitutes6:26
- Items Match as Substitutes6:50
- If the Price of Good A Increases, then the Quantity Demanded of Good Will Increase7:34
- If the Price of Good A Decreases, then the Quantity Demanded of Good Will Decrease8:08
- Example 18:34
- Complements9:35
- Definition of Complements9:44
- Items Match as Complements10:01
- If the Price of Good A Decreases, then the Quantity Demanded of Good Will Increase11:32
- If the Price of Good A Increases, then the Quantity Demanded of Good Will Decrease11:48
- Example 212:38
- Definition of Income Elasticity of Demand14:30
- Normal Good15:08
- Inferior Good15:43
- Income-Elastic16:56
- Income-Inelastic17:04
- Formula for Income Elasticity of Demand17:20
- Formula17:44
- Example 321:39
- Example 424:52
- Price Elasticity of Supply27:59
- Definition of Price Elasticity of Supply28:10
- Formula28:18
- Availability of Inputs Affects Elasticity28:46
- Two Extreme Cases of Supply Price Elasticity29:35
- Example 532:41

Total Surplus, Deadweight Loss & World Trade

47m 51s

- Intro0:00
- Lesson Overview0:16
- II. Product Markets1:25
- What is Consumer Surplus?2:32
- Definition of Consumer Surplus2:35
- Supply and Demand Graph2:44
- What is Producer Surplus?5:20
- Definition of Producer Surplus5:40
- Supply and Demand Graph5:52
- CS + PS8:52
- Example 110:17
- Example 212:21
- How Does a Tax Affect Hotel Owners?14:19
- Excise Tax on Hotel Owners14:37
- Equilibrium Price14:42
- Excise Tax on Hotel Guests19:35
- Equilibrium Price20:03
- Tax Incidence20:13
- Example 322:36
- International Trade26:03
- Autarky26:10
- Importing Countries28:21
- World Price28:22
- Positive Net Gain28:49
- Exporting Countries32:28
- World Price33:35
- Positive Net Gain33:43
- Example 437:46

Production Function & Firm Costs

41m 14s

- Intro0:00
- Lesson Overview0:09
- II. Product Markets0:55
- Long Run vs. Short Run1:46
- Production Function1:51
- Fixed Input2:04
- Variable Input2:20
- Long Run2:36
- Short Run2:54
- Marginal Product of Labor3:03
- Definition of Marginal Product of Labor3:06
- Example MPL Curve3:50
- Different Types of Marginal Returns7:18
- Increasing Marginal Returns7:22
- Diminishing Marginal Returns7:49
- Negative Marginal Returns8:00
- Was Thomas Malthus Correct?10:59
- Thomas Malthus Prediction11:10
- Dismal Science11:29
- Fixed, Variable and Total Cost12:34
- Fixed Cost12:45
- Variable Cost13:06
- Total Cost13:23
- Average Cost15:27
- Marginal Costs22:17
- Relationship Between ATC and MC Curves27:02
- Minimum-Cost Output27:20
- Output Less Than Minimum-Cost Output27:55
- Output Greater Than Minimum-Cost Output28:02
- Just Do It, Smile and Smirk30:09
- MC Curve30:24
- ATC Curve30:45
- AVC Curve31:09
- True or False, or Uncertain?32:57
- Example 132:59
- Example 234:36
- Short-Run Total Cost Function Example38:19

Long-Run Costs & Economies of Scale

32m 23s

- Intro0:00
- Lesson Overview0:10
- II. Product Markets1:10
- Short-Run vs. Long-Run Costs1:46
- Business Decisions1:51
- High Fixed Cost2:19
- Low Fixed Cost2:28
- Example3:03
- Short-Run and Long Run ATC Curves8:25
- Returns to Scale13:25
- Economies of Scale13:34
- Diseconomies of Scale14:27
- Sources of Economies of Scale16:18
- Increased Specialization That Larger Output Levels Allow16:27
- Large Initial Set-Up Cost17:00
- Network Externalities17:51
- Sunk Cost19:05
- Definition of Sunk Cost19:11
- Example19:52
- Fill in the Following Cost Table22:02
- Short-Run vs. Long-Run Example26:43

Section 3: Market Structures

Perfect Competition

47m 49s

- Intro0:00
- Lesson Overview0:14
- II. Product Markets1:31
- Types of Market Structure2:47
- Perfect Competition2:58
- Monopoly3:33
- Oligopoly4:08
- Monopolistic Competition4:45
- Perfect Competition5:35
- Price-Taking Firm5:45
- Price-Taking Consumer6:14
- Perfectly Competitive Market6:55
- Three Characteristics of Perfect Competition7:24
- Production and Profits9:12
- Optimal Output Rule9:20
- The Industry Supply Curve12:27
- Definition of Industry Supply Curve12:35
- Shut-Down Price12:49
- Price Above AVC13:13
- The Long-Run Industry Supply Curve18:01
- Definition of Long-Run Industry Supply Curve18:07
- Example Graphs19:39
- The Effect of an Increase in Demand25:19
- Increase in Demand25:24
- Increase in Demand Raises Price and Profit27:03
- Perfect Competition in Long-Run Equilibrium30:45
- No Economic Profit30:57
- No Firms Enter or Leave31:37
- The Market is Always Right31:50
- Perfect Competition Making Short-Run Profit34:00
- Perfect Competition Incurring Short-Run Loss38:57
- Summary of Profitability and Production43:20

Monopoly

42m 43s

- Intro0:00
- Lesson Overview0:12
- II. Product Markets1:13
- Characteristics of a Monopoly2:53
- Control of a Scarce Resource or Input3:18
- Economies of Scale3:40
- Technological Superiority4:25
- Government Monopolies5:10
- Monopoly and Price Discrimination5:39
- Price Discrimination5:53
- Perfect Price Discrimination8:11
- Monopoly Making a Profit12:08
- Monopoly Incurring a Loss20:42
- Monopoly vs. Perfect Competition23:47
- P=MC23:55
- P>MR=MC24:09
- Monopoly24:25
- Reading a Monopoly Graph29:17

Monopoly & Public Policy

42m 46s

- Intro0:00
- Lesson Overview0:09
- Monopoly vs. Perfect Competition (Surplus)1:06
- Deadweight Loss1:43
- Welfare Effects of Monopoly7:02
- Increase Profits, Decrease Consumer Surplus7:07
- Perfectly Competitive Firms Profit-Maximize7:47
- Deadweight Loss8:15
- Public Ownership of Monopolies8:50
- In Theory10:16
- In Practice10:43
- Unregulated vs. Regulated Natural Monopoly12:03
- Unregulated Monopoly13:14
- Regulated Monopoly13:20
- Monopoly Practice Problem 118:26
- Monopoly Practice Problem 221:34
- Monopoly Practice Problem 324:34
- Monopoly Practice Problem 426:21
- More Monopoly Practice 131:50
- More Monopoly Practice 234:57
- More Monopoly Practice 337:17
- More Monopoly Practice 439:49

Oligopoly & Game Theory

50m 43s

- Intro0:00
- Lesson Overview0:08
- Characteristics of an Oligopoly1:06
- Interdependence1:12
- Few Sellers with Significant Control of Pricing1:32
- Duopoly1:48
- Incentive to Collude1:59
- Cartel2:24
- Game Theory3:33
- Two-Player Model3:46
- Application sin Economics, Military Strategy, Politics4:39
- Nash Equilibrium5:05
- Game Theory (Prisoner's Dilemma)5:31
- Dominant Strategy5:41
- Prisoner's Dilemma6:21
- Game Theory (Chicken)12:37
- Game Theory (One Dominant, One Not)19:54
- Overcoming Prisoner's Dilemma26:29
- Strategic Behavior27:31
- Tit for Tat Strategy27:37
- Tacit Collusion28:17
- Collusion28:46
- (Yet Another) Game Theory Example 129:14
- (Yet Another) Game Theory Example 233:02
- (Yet Another) Game Theory Example 334:40
- (Yet Another) Game Theory Example 437:12
- Final Game Theory Example 139:21
- Final Game Theory Example 241:39
- Final Game Theory Example 343:10
- Final Game Theory Example 445:29

Monopolistic Competition

26m 54s

- Intro0:00
- Lesson Overview0:09
- Characteristics of Monopolistic Competition1:01
- Large Number of Competing Firms1:13
- Differentiated Products2:05
- Free Entry and Exit3:09
- Profitable Firm in Monopolistic Competition4:10
- Unprofitable Firm in Monopolistic Competition7:54
- Long-Run Zero-Profit Equilibrium10:15
- Profitable10:23
- Unprofitable10:46
- Demand Curve11:10
- Comparing Perfect and Monopolistic Competition13:36
- Both13:42
- Perfect Competition13:57
- Monopolistic Competition14:11
- Product Differentiation and Advertising18:44
- Differentiation by Style or Type19:04
- Differentiation by Location19:45
- Differentiation by Quality20:23
- Ford vs. General Motors21:06
- Monopolistic Competition Example22:28

Section 4: Factor Markets

Factor Markets

43m 37s

- Intro0:00
- Lesson Overview0:12
- Economy's Factors of Production1:43
- Land2:21
- Labor2:31
- Capital2:39
- Entrepreneurship3:22
- Why Factor Prices Matter4:01
- Derived Demand4:05
- Example4:38
- Total Product vs. Marginal Product7:12
- Total Product7:40
- Marginal Product7:52
- Value of the Marginal Product11:06
- Value of the Marginal Product of Labor Formula11:26
- Hiring Decision Rule13:50
- Graphing the VMPL (or MRP) Curve16:11
- Shifts of the Factor Demand Curve18:19
- Changes in the Price of Goods18:26
- Changes in Supply of Other Factors20:08
- Changes in Technology21:19
- Factor Market Example22:32
- Another Factor Market Example32:48

Labor Supply & Cost Minimization

46m 6s

- Intro0:00
- Lesson Overview0:12
- Work vs. Leisure1:09
- Labor Market1:45
- Individual Labor Supply Curve2:32
- Substitution Effect2:47
- Income Effect2:55
- Backward-Bending Labor Supply Curve5:31
- Shifts of the Labor Supply Curve9:59
- Changes in Preferences and Social Norms10:12
- Changes in Population10:49
- Changes in Opportunities11:12
- Changes in Wealth13:14
- Determining the Optimal Input Mix14:49
- Substitutes and Complements in Factor Markets15:25
- Cost Minimization16:34
- Capital vs. Labor20:05
- Example 120:08
- Example 223:39
- Theories of Income Distribution25:51
- Marginal Productivity and Wage Inequality26:09
- Market Power28:02
- Efficiency Wages28:44
- Discrimination30:48
- Factor Market Example 132:59
- Factor Market Example 239:05
- Factor Market Example 342:44

Section 5: Market Failure and the Role of Government

Positive & Negative Externalities

39m 21s

- Intro0:00
- Lesson Overview0:07
- The Economics of Pollution1:06
- Marginal Social Cost of Pollution2:20
- Marginal Social Benefit of Pollution2:49
- Socially Optimal Quantity of Pollution3:08
- Socially Optimal Quantity of Pollution3:38
- Upward-Sloping MSC Curve3:43
- Downward-Sloping MSB Curve4:31
- Socially Optimal Point4:51
- Market-Determined Quantity of Pollution5:30
- Graphing a Negative Externality7:28
- Negative Externality7:52
- High Market Price, Low Market Quantity8:25
- Graphing a Positive Externality11:49
- Positive Externality11:55
- Low market Price, Low Market Quantity12:39
- Government Solution15:17
- Correct a Negative Externality15:19
- Correct a Positive Externality15:31
- Private (or Coase) Solution20:29
- Coase Theorem20:30
- Example20:58
- Negative Externality Example23:14
- Positive Externality Example26:49
- Externality Example30:22
- Another Externality Example33:01
- Final Externality Example35:37

Public vs. Private Goods

26m 45s

- Intro0:00
- Lesson Overview0:10
- Characteristics of Goods1:53
- Rival2:27
- Nonrival2:39
- Excludable3:22
- Nonexcludable4:01
- Four Types of Goods5:08
- Private Goods5:12
- Public Goods5:19
- Common Resource7:17
- Artificially Scarce Good8:32
- Private Goods10:43
- Rival and Excludable10:47
- Free-Rider Problem11:21
- Most Items are Private Foods12:24
- Public Goods12:48
- Nonrival and Nonexcludable12:52
- Suffers from the Free-Rider Problem12:56
- Common Resources15:27
- Incentive to Overuse15:55
- Tragedy of the Commons16:47
- Artificially Scarce Resources18:47
- Marginal Cost to Society Watching Pay-Per-View19:19
- Computer Software and Audio Files Share Same Characteristic20:29
- Healthcare and Government22:02

Income Inequality & Income Distribution

31m 8s

- Intro0:00
- Lesson Overview0:10
- The Problem of Poverty1:13
- Definition of Poverty1:17
- Poverty Threshold1:43
- Who are the Poor?3:48
- 1 in 7 People in 20093:53
- Female-Headed Households5:05
- Part-Time Workers5:40
- What Causes Poverty?6:14
- Lack of Education6:23
- 1979 Average Hourly Wage17:03
- 2009 College Premium7:48
- Other Causes of Poverty8:35
- Economic Inequality9:09
- Mean Income and Median Income9:24
- Income is Unequally Distributed10:43
- Gini Coefficient13:33
- Definition of Gini Coefficient13:35
- High Levels of Inequality13:57
- Gini Coefficient in the United States14:26
- High Gini Levels14:41
- Lorenz Curve14:47
- United States Rates of Income Growth17:27
- Three Types of Taxes19:54
- Proportional Tax20:39
- Regressive Tax21:16
- Progressive Tax22:28
- Means-Tested Programs24:46
- Welfare24:52
- Temporary Aid for Needy Families25:00
- Supplemental Security Income26:05
- Negative Income Tax26:18
- Food Stamps and Medicaid27:00
- Social Security and Unemployment27:35
- Retirement Income27:56
- Wages Taxed28:29
- Unemployment Insurance28:51
- Trade-Offs30:21

Section 6: Practice AP Exam

AP Practice Exam: Multiple Choice, Part I

1h 15m 2s

- Intro0:00
- Question 10:27
- Question 21:48
- Question 32:53
- Question 44:43
- Question 56:37
- Question 68:10
- Question 79:19
- Question 811:01
- Question 912:03
- Question 1014:37
- Question 1115:19
- Question 1216:35
- Question 1317:41
- Question 1419:24
- Question 1520:15
- Question 1621:08
- Question 1721:49
- Question 1823:17
- Question 1923:59
- Question 2024:48
- Question 2125:33
- Question 2227:19
- Question 2328:03
- Question 2429:52
- Question 2530:28
- Question 2631:19
- Question 2733:11
- Question 2834:55
- Question 2936:14
- Question 3037:55
- Question 3139:13
- Question 3240:27
- Question 3341:57
- Question 3443:26
- Question 3545:40
- Question 3646:37
- Question 3747:22
- Question 3849:09
- Question 3950:09
- Question 4031:37
- Question 4152:43
- Question 4255:35
- Question 4357:02
- Question 4458:27
- Question 4559:10
- Question 461:00:00
- Question 471:01:22
- Question 481:01:52
- Question 491:03:20
- Question 501:05:09
- Question 511:05:45
- Question 521:06:35
- Question 531:07:09
- Question 541:07:54
- Question 551:09:39
- Question 561:10:25
- Question 571:11:19
- Question 581:12:31
- Question 591:13:02
- Question 601:14:31

AP Practice Exam: Multiple Choice, Part II

29m 18s

- Intro0:00
- Question 10:22
- Question 21:04
- Question 32:54
- Question 43:34
- Question 54:48
- Question 66:12
- Question 77:40
- Question 88:31
- Question 99:48
- Question 1011:16
- Question 1111:48
- Question 1212:55
- Question 1314:40
- Question 1415:47
- Question 1517:05
- Question 1617:30
- Question 1717:55
- Question 1819:10
- Question 1919:57
- Question 2022:49
- Question 2123:53
- Question 2224:28
- Question 2324:51
- Question 2427:25

AP Practice Exam: Free Response, 2013

24m 18s

- Intro0:00
- Question 10:17
- Question 212:37
- Question 319:32

AP Practice Exam: Free Response, 2012

22m 32s

- Intro0:00
- Question 10:20
- Question 26:47
- Question 314:57

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For more information, please see full course syllabus of AP Microeconomics

For more information, please see full course syllabus of AP Microeconomics

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0 answers

Post by Rebecca Dai on November 7, 2014

In the last example, when ATC decreases, does it still intersect with MC at the minimum point? Why?

0 answers

Post by Rebecca Dai on November 7, 2014

what is excess capacity?

0 answers

Post by Rebecca Dai on November 7, 2014

Why is steeper demand curve more inelastic?

1 answer

Last reply by: Professor Jibin Park

Thu May 1, 2014 5:13 PM

Post by Richard Wolf on May 1, 2014

Don't all market structures have free entry and exit in the long run technically?

0 answers

Post by Professor Jibin Park on April 6, 2014

MC stays the same. MC is the change in TC/change in quantity. Also, you are right in that TC = FC + VC. If FC goes down, Total cost goes down but marginal cost is unaffected.

0 answers

Post by Elva Fu on April 6, 2014

In the last example, if FC is decreased, why MC stays the same? Isn't MC = change in TC/change in quantity and TC = FC + VC. Since FC cost goes down, TC goes down, and MC goes down as well?