If entry is completely free, the demand curve for the leading, profit-making monopolistic competitor will

Question

Quizplus · Accepted Answer

When entry is completely free, the monopolistic competitor's profit will be driven down to zero in the long run. This means that the demand curve faced by the monopolistic competitor will shift to the left, as competition increases. The firm will need to lower its price to maintain its market share, ultimately resulting in a zero-profit equilibrium. At that point, the firm will be producing at the level where MC=MR and ATC is tangent to the demand curve, as in perfect competition. Therefore, the demand curve will move to the left until where MC=MR is where the ATC curve is tangent to the demand curve, and this is the best choice.

If Entry Is Completely Free, the Demand Curve for the Leading