In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the _____ of firms shifts the firm's demand and marginal revenue curves _____ the firm's level of output and _____ the price it can charge until price equals average total cost.
A) entry; leftward, decreasing; decreasing
B) entry; leftward, decreasing; increasing
C) entry; downward, decreasing; decreasing
D) exit; rightward, increasing; increasing

Question

Quizplus · Accepted Answer

In the long run, the entry of new firms into the market due to positive economic profits causes the demand and marginal revenue curves for the existing firm to shift leftward, decreasing the firm's level of output and the price it can charge until price equals average total cost, eliminating economic profits.

In the Short Run, a Monopolistically Competitive Firm Produces at the Optimal