General Snacks is a typical firm in a market characterized by the model of monopolistic competition.Initially, the market is initially in long-run equilibrium, and then there is an increase in demand for snacks.We expect that:
A)in the long run, new firms will enter the market.
B)there will be a short-run increase in the number of firms, but in the long run the number of firms will return to the original level.
C)firms will leave the market in the long run.
D)firms will shut down, but they will not leave the industry in the long run.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms can enter and exit relatively easily in the long run. With the increase in demand for snacks, firms will earn economic profits in the short run, which will attract new firms to enter the market in the long run. This will increase competition and eventually drive down profits to the normal level of monopolistic competition.

General Snacks Is a Typical Firm in a Market Characterized