The market for plumbing services in a city can be characterized by the model of monopolistic competition.Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing services.We expect that in the long run:

Question

Quizplus · Accepted Answer

In the long run, the increase in demand for plumbing services will lead to economic profits for firms in the market. This will attract new firms to enter the market in order to take advantage of the profits. As a result, the number of firms in the market will increase, but each firm will have a smaller market share and lower profit margin due to increased competition. Therefore, the market will still be characterized by monopolistic competition with differentiated products.

The Market for Plumbing Services in a City Can Be