The diagram below shows demand and cost curves for a monopolistically competitive firm. FIGURE 11- 3
-Refer to Figure 11- 3. If a decrease in industry demand led to an inward shift of each firm's demand curve, a 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 a decrease in industry demand led to an inward shift of each firm's demand curve, a typical firm would

Quizplus · Accepted Answer

A decrease in industry demand would lead to a leftward shift in the demand curve for each firm, resulting in a decrease in the price and quantity sold. At the original equilibrium price and quantity, the firm would now be making losses, which would lead some firms to exit the industry in the long run, shifting the remaining firms' demand curves back to the right. Eventually, a new long-run equilibrium would be reached with lower profits for the remaining firms. Therefore, option D is the correct answer.

The Diagram Below Shows Demand and Cost Curves for a Monopolistically