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Economics Competition Help

So I've been revising, but I'm struggling to understand the changes in Cost Revenue diagram following an increase in competition due to something like deregulation.

So in a monopolistic competition market in the short run, a firm will operate at profit max ( MC = MR ). However econplusdal states that following deregulation ( more competition in market) the firm will then operate at MC = AR ( allocative efficency ).

I cannot understand why this move is made. To my knowledge deregulation will cause a shift in supply outwards on a normal market diagram. And then the AR and MR curve will shift inwards / down on the cost revenue diagram - as there is less demand for the single firm due to having to share demand with new firms.

Hope someone can help! Thanks!

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