The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11- 3
-Refer to Figure 11- 3.If an increase in industry demand led to an outward shift in each firm's demand curve,and no change to the firm's costs,the typical firm would

Question

The diagram below shows demand and cost curves for a monopolistically competitive firm.
  FIGURE 11- 3
-Refer to Figure 11- 3.If an increase in industry demand led to an outward shift in each firm's demand curve,and no change to the firm's costs,the typical firm would

Quizplus · Accepted Answer

An outward shift in the demand curve indicates an increase in demand for the product, which means a higher equilibrium price and quantity. If costs do not change, the typical firm would be making profits in the short run. However, in the long run, new firms would enter the industry attracted by the profits, which would increase competition and shift the demand curve back to the left, resulting in a lower equilibrium price and the typical firm making only normal profits.

The Diagram Below Shows Demand and Cost Curves for a Monopolistically