Figure 16-6
The figure is drawn for a monopolistically competitive firm.
-Refer to Figure 16-6. In response to the situation represented by the figure, we would expect
A)new firms to enter the market.
B)the demand for this firm's product to decrease, assuming this firm does not exit.
C)this firm's profit to remain the same.
D)some of the firms that are currently in the market to exit.

Question

Figure 16-6
The figure is drawn for a monopolistically competitive firm.  ​
-Refer to Figure 16-6. In response to the situation represented by the figure, we would expect
A)new firms to enter the market. 
B)the demand for this firm's product to decrease, assuming this firm does not exit. 
C)this firm's profit to remain the same. 
D)some of the firms that are currently in the market to exit.

Quizplus · Accepted Answer

Given that the figure likely shows a situation where a firm is not covering its costs (since specific details of the figure are not provided, this is a common scenario for such questions), existing firms may incur losses. This would lead firms that cannot cover their variable or total costs to exit the market to minimize losses.

Figure 16-6 The Figure Is Drawn for a Monopolistically Competitive Firm