Baranby Inc produces in a monopolistically competitive market. Which of the following correctly explains how a firm in this market structure would transition from the short run to the long run? (a) The supernormal profits earned by Barnaby Inc. in the short run will attract new firms into the market. This will shift Barnaby Inc.’s demand curve to the left and it will continue to shift left until Average Revenue equals Average Cost and only normal profits are made. (b) The supernormal profits earned by Barnaby Inc. in the short run will attract new firms into the market. This will shift the market supply curve to the right, which will reduce the market price and the price faced by Warwick Inc. The price will keep falling until Average Revenue equals Average Cost and only normal profits are made. (c) The supernormal profits earned by Barnaby Inc. in the short run will remain in the long run, due to high barriers to entry which prevent the entry of new firms and thus protect Barnaby Inc.’s profits. (d) The supernormal profits earned by Barnaby Inc. in the short run will lead to the market demand curve shifting to the right, which will raise the price firms can sell at and this will attract new firms into the market. This will shift Barnaby Inc.’s supply curve to the right, which will reduce the price it can sell at and this will continue until Average Revenue equals Average Cost and only normal profits are made.
Baranby Inc produces in a
(a) The supernormal profits earned by Barnaby Inc. in the short run will attract new firms into the market. This will shift Barnaby Inc.’s
(b) The supernormal profits earned by Barnaby Inc. in the short run will attract new firms into the market. This will shift the market supply curve to the right, which will reduce the market price and the price faced by Warwick Inc. The price will keep falling until Average Revenue equals Average Cost and only normal profits are made.
(c) The supernormal profits earned by Barnaby Inc. in the short run will remain in the long run, due to high barriers to entry which prevent the entry of new firms and thus protect Barnaby Inc.’s profits.
(d) The supernormal profits earned by Barnaby Inc. in the short run will lead to the market demand curve shifting to the right, which will raise the price firms can sell at and this will attract new firms into the market. This will shift Barnaby Inc.’s supply curve to the right, which will reduce the price it can sell at and this will continue until Average Revenue equals Average Cost and only normal profits are made.
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