Show a firm that begins in a perfectly competitive industry, earning no economic profit nor economic loss. Then, assume the firm can differentiate its product in a way that makes the product more attractive to consumers, so the firm then has market power. Show the new equilibrium, where this firm is maximizing profit, assuming the firm is now earning an economic profit. Use this analysis to explain why it is reasonable for firms to try to differentiate their product from their competitors
Show a firm that begins in a
Show a firm that is earning zero economic profits, but has some market power. Then, assume this market power is entirely eliminated when a new competitor enters the market with the same technology and produces a perfect substitute. Showing in your diagram how the firm must adjust its production level to most effectively compete with the new entering firm, explain why maintaining competition is important.
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