Suppose firms in a monopolistically competitive industry are currently earning short-run economic profit. In the long run, the demand curve facing each individual firm is likely to:

Question

Suppose firms in a monopolistically competitive industry are currently earning short-run economic profit. In the long run, the demand curve facing each individual firm is likely to:​

Quizplus · Accepted Answer

In the long run, new firms are attracted by the economic profits and enter the market, increasing competition. This causes the demand curve for each individual firm to shift to the left and become more elastic (flatter) as consumers have more substitutes to choose from.

Suppose Firms in a Monopolistically Competitive Industry Are Currently Earning