Explain the long-adjustment process that take place in a monopolistically competitive industry that is earning pure economic profits
What will be an ideal response?
As new firms enter a monopolistically competitive industry in search of profits, the demand curves of profit-making existing firms begin to shift to the left, pushing marginal revenue with them as consumers switch to the new close substitutes. This process continues until profits are eliminated, which occurs for a firm when its demand curve is just tangent to its average total cost curve.
You might also like to view...
The cross price elasticity of demand for a good x is the percentage change in the quantity demanded of good x in response to a given percentage change in
A) income. B) the price of good x. C) the price of good y. D) the quantity demanded of good y.
Refer to Figure 12.7. If Fred's profit in the second rectangle from the top were 1,600 instead of 1,500 then the path of the game would be:
A. Fred chooses a small quantity and Barney enters. B. Fred chooses a large quantity and Barney stays out. C. Fred chooses a large quantity and Barney enters. D. Fred chooses a small quantity and Barney stays out.