If the typical firm in a monopolistically competitive industry is in the situati

Question

If the typical firm in a monopolistically competitive industry is in the situation as Monopolistically Competitive Firm depicted in the figure to the right, it should expect O A. an increase in its long-run average costs and an increase in the demand O B. an increase in the number of firms in its market and no change of its O c. a decrease in the number of finns in its market and an increase in the for its brand. MC long-run average costs. SRATC demand for its brand. None of the above. D. MR Output Click to select your answer

Explanation / Answer

In the above situation, the price charged by the monopolistic firm is less than the ATC. The firm is making a loss. Thus, seeing this loss, The firm can expect that some of the existing firms in this industry will exit the market. When there are fewer firms in the market, the demand for a product/brand of a typical firm increases.

Thus, option c is correct.

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