Suppose all firms in a monopolistically competitive industry face the same demand and cost curves pictured in the figure below: Price, Costs MC 14 ATC 10 AVC 8 6 ..-. 4 MR 2 3 Output In the long run: New firms will enter; industry supply curve will shift to the right O New firms will enter; firm demand curves will shift to the left New firms will enter; firm demand curves will become less price elastic Firms will exit; demand curve for existing firms will shift to the right
Suppose all firms in a monopolistically competitive industry face the same demand and cost curves pictured in the figure below: Price, Costs MC 14 ATC 10 AVC 8 6 ..-. 4 MR 2 3 Output In the long run: New firms will enter; industry supply curve will shift to the right O New firms will enter; firm demand curves will shift to the left New firms will enter; firm demand curves will become less price elastic Firms will exit; demand curve for existing firms will shift to the right
Chapter14: Monopolistic Competition And Product Differentiation
Section: Chapter Questions
Problem 6P
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