The diagram below shows demand and cost curves for a monopolistically competitive firm. FIGURE 11-3
-Refer to Figure 11-3.If a decrease in industry demand led to an inward shift of each firm's demand curve,a typical firm would

Question

The diagram below shows demand and cost curves for a monopolistically competitive firm.  FIGURE 11-3
-Refer to Figure 11-3.If a decrease in industry demand led to an inward shift of each firm's demand curve,a typical firm would

Quizplus · Accepted Answer

A decrease in industry demand would lead to an inward shift of each firm's demand curve, resulting in a lower equilibrium quantity and price. Since the firm is producing at a quantity where marginal cost equals marginal revenue (MC=MR), a decrease in price would lead to a lower level of output at the same cost, resulting in a loss. In the long run, some firms would exit the industry, leading to a decrease in supply and an increase in price until the remaining firms are making zero economic profit. Therefore, the firm would be making losses and some firms would exit the industry in the long run.

The Diagram Below Shows Demand and Cost Curves for a Monopolistically