Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10.

-Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,which of the following would you expect to occur in the long run in this market?

Question

Table 16-7
A monopolistically competitive firm faces the following demand schedule for its product. In addition, the firm has total fixed costs equal to $10.
 
-Refer to Table 16-7.If the firm has a constant marginal cost of $5 per unit,which of the following would you expect to occur in the long run in this market?

Quizplus · Accepted Answer

The demand schedule shows that there is a relatively elastic demand curve for the product, meaning that there are close substitutes available in the market. With fixed costs of $10, the firm will need to charge a price of at least $15 ($10 + $5) to break even in the long run. However, in the long run new firms are likely to enter the market attracted by the profits. This will increase competition and drive down prices. As a result, profits for firms in the market will fall. Therefore, choice (A) is the best answer.

Table 16-7 a Monopolistically Competitive Firm Faces the Following Demand Schedule for Schedule