If a monopolistically competitive industry is in long-run equilibrium and the costs of resources increase suddenly, some firms will eventually leave the industry.

Question

Quizplus · Accepted Answer

If the costs of resources increase suddenly, the firms in the industry will experience an increase in their average total costs. This will lead to a decrease in their profits, and some firms may no longer be able to cover their costs. As a result, some firms will exit the industry, leading to a decrease in the number of firms and an increase in market power for the remaining firms. Eventually, the industry will reach a new long-run equilibrium at a higher price and lower quantity, with fewer firms than before.

If a Monopolistically Competitive Industry Is in Long-Run Equilibrium and the Costs