Figure 8.2
-Figure 8.2 shows demand and costs for a monopolistically competitive firm. In the long run we expect

Question

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In the long run, we expect more firms to enter the market of a monopolistically competitive firm. This is because there are positive economic profits in the short run, which will attract new entrants in the long run, increasing competition and driving down profits for all firms. As more firms enter, the demand curve of the original firm will shift left, making it more difficult for the firm to maintain its market power and pricing. The price of the good may increase or decrease depending on the degree of competition and cost structures of the firms, but there is no clear relationship with the given information. The average cost of production may decrease due to economies of scale, but this is not guaranteed as each firm's scale may differ and there may be diminishing returns at some point.

Figure 8.2 -Figure 8.2 Shows Demand and Costs for a Monopolistically Competitive