If a monopolistically competitive firm is earning profits in the short run, then in the long run the behavior of competing firms
A) will cause the firm's supply curve to shift to the left.
B) will cause the firm's supply curve to shift to the right.
C) will cause the firm's demand curve to shift to the left.
D) will cause the firm's demand curve to shift to the right.

Question

Quizplus · Accepted Answer

In the long run, the entry of new firms into the market, attracted by the profits, will increase competition for the original firm. This increased competition will reduce the demand for the original firm's product as consumers have more alternatives, leading to a leftward shift in the firm's demand curve.

If a Monopolistically Competitive Firm Is Earning Profits in the Short