The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run,we would expect:
A)the price of the firm's output to increase.
B)entry of new firms because economic profits are positive.
C)exit of few existing firms because economic profits are negative.
D)the firm's demand curve to shift outward.
E)the firm's demand curve to becomes less elastic.

Question

The figure given below shows the revenue and cost curves of a monopolistically competitive firm. Figure 11.4  
MR: Marginal revenue curve
ATC: Average total cost curve
MC: Marginal cost curve
-Assume that the firm in Figure 11.4 is monopolistically competitive.In the long run,we would expect:
A)the price of the firm's output to increase. 
B)entry of new firms because economic profits are positive. 
C)exit of few existing firms because economic profits are negative. 
D)the firm's demand curve to shift outward. 
E)the firm's demand curve to becomes less elastic.

Quizplus · Accepted Answer

In the long run, if a monopolistically competitive firm is making economic profits, new firms will enter the market, increasing competition and driving profits to zero.

The Figure Given Below Shows the Revenue and Cost Curves