The Theory of Imperfect Competition The number of firms and the price The price the typical firm charges depends on the number of firms in the industry The more firms, the more competition, and hence the lower the price In the monopolistic competition model firms are assumed to take each others' prices as given If each firm treats P as given, we can rewrite the demand curve(6-5) in the form O=(S/n+ SXbxP)-SXbx P (6-7 Copyright C 2003 Pearson Education, Inc Slide 6-23Copyright © 2003 Pearson Education, Inc. Slide 6-23 • The number of firms and the price – The price the typical firm charges depends on the number of firms in the industry. – The more firms, the more competition, and hence the lower the price. – In the monopolistic competition model firms are assumed to take each others’ prices as given. The Theory of Imperfect Competition – If each firm treats P as given, we can rewrite the demand curve (6-5) in the form: Q = (S/n + S x b x P) – S x b x P (6-7)