✏ Field of Dreams

“If you Build it, they will come”

In economics, it is slightly different:

“If there is free entry and you are making a profit, they will come and they will steal your customers until you aren’t making economic profit anymore.”

✏ Can you see how the above is illustrated in both the Perfect Competition slides and the Monopolistic Competition slides?

✔ Click here to view answer

Ask me if you get stuck.  ✅

The following slide illustrates the long run equilibrium in which firms have 0 profit in the long run for both perfect competition and monopolistic competition:

In lecture, for both market structures, he explains how if you are making profits, entry will occur and the new entrants will compete away your profits.

Monopolistic Competition

Perfect Competition