Please answer and expalin. Thanks The graph depicts a monopolistically competiti
ID: 2494973 • Letter: P
Question
Please answer and expalin. Thanks
The graph depicts a monopolistically competitive firm in the short run. Which of the following explanations best describes the long run adjustment?
Figure 16-11 Price 50 45 40 35 30 IS 10 10 20 30 40 50 60 70 80 Dasetit Refer to Figure 16-11. The graph depicts a monopolistically competitiv e firm in the short run. Which of the following explanations best describes the long run adjustment? O a More firms will enter this market and each firm will have a smaller share of the total market demand, shifting this firm's demand curve to the left. b. More fims will enteths aket and each firm will have a arger share of the total market demand, shifting this firm's demand to the right. OC. Firms will exit this market and each furm will have a smaller share of the total market demand, shifting this furm's demand to the left. 0 d. Firms will exit this market and each firm wil have a larger share of the total market demand, shifting this firm's demand to the right.Explanation / Answer
During the long run new firms can be established, existing firms can expand their size and all factor inputs can undergo a change.
No Monopolistic competitive firm receives abnormal profit in the long run
The firm is in equilibrium because MC=MR. Since, at this equilibrium AR is tangent to long run AC Hence, the firms are earning normal profits. Hence,
b) More firms will enter this market an each firm will have a larger share of the total market demand, shiftiing the firm's demand to the right.
By,
Nishant Bhatt