Table 13-2

Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2.What is likely to happen to the product's price in the long run?
A)It will fall.
B)It will increase.
C)It will remain constant.
D)This cannot be determined without information on its long-run demand curve.

Question

Table 13-2
  
Eco Energy is a monopolistically competitive producer of a sports beverage called Power On. Table 13-2 shows the firm's demand and cost schedules.
-Refer to Table 13-2.What is likely to happen to the product's price in the long run?
A)It will fall. 
B)It will increase. 
C)It will remain constant. 
D)This cannot be determined without information on its long-run demand curve.

Quizplus · Accepted Answer

In monopolistic competition, firms enter and exit the market freely in the long run, and the market price settles at the point where firms earn only normal profit. If Eco Energy is earning economic profit in the short run, new firms will enter, increasing competition and driving down the price. Therefore, in the long run, the price of Power On is likely to fall.

Table 13-2 Eco Energy Is a Monopolistically Competitive Producer of a Sports