If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios best reflects the change a representative firm experiences as the market adjusts to its long-run equilibrium?
A)Demand decreases and becomes less elastic.
B)Demand decreases and becomes more elastic.
C)Demand increases and becomes less elastic.
D)Demand increases and becomes more elastic.

Question

Quizplus · Accepted Answer

In the long run, new firms enter the market due to economic profits, increasing competition. This causes the demand for each existing firm's product to decrease and become more elastic as consumers have more substitutes available.

If Firms in a Monopolistically Competitive Market Are Earning Economic