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Figure: Monopolistic Competition
-(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect:
A) prices to increase.
B) demand to become more inelastic.
C) less quality and innovation.
D) more firms to enter the market.

Question

Use the following to answer questions:
Figure: Monopolistic Competition 
-(Figure: Monopolistic Competition) Refer to the figure. Suppose the figure represents a firm that operates in a monopolistically competitive market. In the long run you would expect:
A) prices to increase. 
B) demand to become more inelastic. 
C) less quality and innovation. 
D) more firms to enter the market.

Quizplus · Accepted Answer

In the long run, we expect to see more firms entering the market due to the profit opportunities. This leads to increased competition which ultimately drives prices down and makes demand more elastic. Firms may also be incentivized to focus on quality and innovation in order to differentiate themselves from their competitors.

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