Suppose that firms in a monopolistically competitive industry are making positive profits in the short run....
Suppose that firms in a monopolistically competitive industry are making positive profits in the short run.
Select the correct answers below to describe what will happen in this industry in the long run.
Since profits are greater than zero, firms will enter/exit
As this occurs, demand for each firm will, increase/decrease/stay the same
This will continue until, profits increase/decrease/equal zero
At this point, P=ATC/P=MR/P=MC
Homework Answers
Like Competitive market, Monopolistic firm earns only normal profit over the long run. Abnormal profit in short run attracts the entry of new firms in market and that eat away extra profit, thus all firms earn only normal profit or zero profit or at this point P = ATC.
Right Answers are:
Since profits are greater than zero, firms will enter
As this occurs, demand for each firm will, decrease
This will continue until, profits equal zero
At this point, P=ATC
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