Figure 16-4

-Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

Question

Figure 16-4
 
-Refer to Figure 16-4.Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?

Quizplus · Accepted Answer

In panel b, the average cost curve (AC) is above the demand (D) curve at the profit-maximizing quantity, indicating that firms are making losses. Thus, some firms are likely to exit the market in the short run, leading to a decrease in the number of firms and an increase in market power for the remaining firms. This is consistent with the typical outcome of a monopolistically competitive market in the short run. Panels a, c, and d do not show conditions that would encourage firms to exit the market.

Figure 16-4 -Refer to Figure 16-4.Which of the Graphs Depicts a Short-Run