If the representative firm in a monopolistically competitive industry has an optimal output where P

Question

If the representative firm in a monopolistically competitive industry has an optimal output where P < ATC, the industry will expand in the long run.

Quizplus · Accepted Answer

In the long run, if a representative firm in a monopolistically competitive industry is producing at an output level where price (P) is less than average total cost (ATC), the firm is incurring losses. This situation will lead to firms exiting the industry, not expanding, until economic profits reach zero.

If the Representative Firm in a Monopolistically Competitive Industry Has