9781118041581

338 Chapter 8 Monopoly

Dollars per Unit of Output

P

AC

MC AC

DF

MRF

Q

Output

Dollars per Unit of Output

PE

QE

Output

MRF DF

MC

AC

(a) The Firm Earns Excess Profit

(b) Long-Run Equilibrium—The Firm Earns Zero Economic Profit

FIGURE 8.5

Monopolistic

Competition

In part (a), the firm

produces output Q

(where MR MC) and

makes a positive

economic profit. In

part (b) the entry of

new firms has reduced

the firm’s demand

curve to the point

where only a zero

economic profit is

available.

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