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LONG-RUN EQUILIBRIUM, MONOPOLISTIC COMPETITION: Relative freedom of entry and exit ensures that, in the long run, every firm in a monopolistically competitive industry earns exactly a normal profit, receiving neither an economic profit, nor incurring an economic loss. This result is achieved because entry and exit affects the market supply curve, which affects the overall market price, each firm's demand curve, and the range or prices it can charge. Each firm's demand curve adjusts until the profit-maximizing price is exactly equal to average total cost (both short run and long run).
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                           TOTAL REVENUE CURVE, MONOPOLISTIC COMPETITION: A curve that graphically represents the relation between the total revenue received by a monopolistically competitive firm for selling its output and the quantity of output sold. It is combined with the total cost curve to determine economic profit and the profit maximizing level of production. The slope of the total revenue curve is marginal revenue. Monopolistic competition is a market structure with a large number of relatively small firms that sell similar but not identical products. Each firm is small relative to the overall size of the market such that it has some market control, but not much. In other words, it can sell a wide range of output at a narrow range of prices. This translates into a relatively elastic demand curve. If a monopolistically competitive firm wants to sell a larger quantity, then it must lower the price.The total revenue curve reflects the degree of market control held by a firm. For a perfectly competitive firm with no market control, the total revenue curve is a straight line. For firms with more market control, such as monopolistic competition, the slope of the total revenue curve flattens at larger quantities. The slope of this total revenue curve is marginal revenue. Total Revenue Curve,
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The total revenue curve for Manny Mustard's House of Sandwich is displayed in the exhibit to the right. Key to this curve is that Manny Mustard is a monopolistically competitive provider of Deluxe Club Sandwiches and thus faces a negatively-sloped demand curve. Larger quantities of output are only possible with lower prices.The vertical axis measures total revenue and the horizontal axis measures the quantity of output (number of sandwiches). Although quantity on this particular graph stops at 10 sandwiches of medicine, it could go higher. This curve indicates that if Manny Mustard's House of Sandwich sells 1 sandwich (at $5.25 per sandwich), then it receives $5.25 of total revenue. Alternatively, if it sells 10 sandwiches (at $4.75 per sandwich), then it receives $47.50 of total revenue. While the curvature is slight, the total revenue curve for monopolistic competition is not a straight line. While the curvature is slight, the total revenue curve for monopolistic competition is not a straight line. For Manny Mustard the total revenue curve has a slightly flatter slope as more output is produced. The changing slope of this curve is due to the changing price.
Recommended Citation:TOTAL REVENUE CURVE, MONOPOLISTIC COMPETITION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2023. [Accessed: February 9, 2023].
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