The model of monopolistic competition characterizes the market for plumbing services in a city.This market is initially in long-run equilibrium,but then there is an increase in market demand for plumbing services.We expect that in the long run:
A)firms will leave the plumbing market.
B)there will be a short-run increase in the number of firms,but then the number will return to the original level.
C)new firms will enter the plumbing market.
D)firms will shut down,but they will not leave the industry.

Question

Quizplus · Accepted Answer

In the model of monopolistic competition in the long run, new firms are able to enter the market due to low barriers to entry. In this scenario, with an increase in market demand for plumbing services in the long run, we expect new firms to enter the market to take advantage of the potential profits. This will increase competition and eventually lead to a return to normal long-run equilibrium.

The Model of Monopolistic Competition Characterizes the Market for Plumbing