General Snacks is a typical firm in a market characterized by the model of monopolistic competition.Initially,the market is initially in long-run equilibrium,and then there is an increase in the market demand for snacks.We expect that:
A)in the long run,new firms will enter the market.
B)there will be a short-run increase in the number of firms,but in the long run,the number of firms will return to the original level.
C)firms will leave the market in the long run.
D)firms will shut down,but they will not leave the industry in the long run.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms can differentiate their products to some extent, giving them some market power. When demand increases, firms can earn economic profits in the short run. However, in the long run, new firms will enter the market, attracted by the profits. This will increase competition and erode the market power of existing firms, leading to a return to normal profits in the long run. Therefore, choice A is the best option.

General Snacks Is a Typical Firm in a Market Characterized