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RIVAL CONSUMPTION: Consumption of a good by one person imposes a cost on, or prevents consumption of the good by, another person. Some goods, like food, have extremely rival consumption. One person, and only one person, gets the benefit. Other goods, like national defense, have no consumption rivalry, everyone can benefit simultaneously without imposing a cost on others. This is one of the two key characteristics of a good (the other is excludability) that distinguishes between common-property goods, near-public goods, private goods, and public goods.

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Lesson 19: Monopolistic Competition | Unit 3: Output Page: 13 of 22

Topic: Long-Run Equilibrium <=PAGE BACK | PAGE NEXT=>

  • The long run, which is the period in which all inputs are variable, has two implications for monopolistic competition firms.

    1. A firm adjusts plant size to maximize profit in the long run.
    2. Firms enter and leave the industry to achieve zero economic profit.

  • The end result of this long-run adjustment is:

    1. The demand curve for each firm is tangent to the long-run average cost curve and the short-run average total cost curve. This ensures zero economic profit.

    2. However, because the demand curve is negatively sloped, this point of tangency takes place on the negatively-sloped portion of the long-run average cost curve.

    3. The negatively-sloped portion of the long-run average cost curve portion results from economies of scale and is less than the minimum efficient scale.

  • The primary implication is that monopolistic competition does not use capital as efficiently as perfect competition.


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AUTONOMOUS EXPENDITURES

Expenditures on aggregate production by the four macroeconomic sectors that do not depend on income or production (especially national income or even gross domestic product). That is, changes in income do not generate changes in these expenditures. Each of the four aggregate expenditures--consumption, investment expenditures, government purchases, and net exports--have an autonomous component. Autonomous expenditures are affected by the ceteris paribus aggregate expenditures determinants and are measured by the intercept term of the aggregate expenditures line. The alternative to autonomous expenditures are induced expenditures, expenditures which do depend on income.

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