The graph depicts a monopolistically competitive firm. This monopolistically competitive firm is earning economic profits in the short run and
A) will continue to have economic profits in the long run.
B) will earn only normal profits in the long run.
C) this will cause its demand curve to shift to the right in the long run.
D) this will cause its cost curves to rise in the long run.

Question

The graph depicts a monopolistically competitive firm.  This monopolistically competitive firm is earning economic profits in the short run and
A) will continue to have economic profits in the long run. 
B) will earn only normal profits in the long run. 
C) this will cause its demand curve to shift to the right in the long run. 
D) this will cause its cost curves to rise in the long run.

Quizplus · Accepted Answer

In the long run, other firms will enter the market, increasing the level of competition and reducing the demand for the product. As a result, the firm's demand curve will shift leftward, leading to lower prices and lower economic profits. Eventually, the firm will only earn normal profits in the long run.

The Graph Depicts a Monopolistically Competitive Firm