assuming the total market size remains constant, a monopolistically competitive

Question

assuming the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because a. as the firm raises it sprice in the long run, it will lose some customers to new entrants in the market b. its cost of production rises c. new entrants into the market are more likely to have cutting edge products d. some of its customers have switched to purchasing the products of new entrants in the market

Explanation / Answer

Assuming the total market size remains constant, a monopolistically competitive firm earning profits in the short run will find the demand for its product decreasing in the long run because some of its customers have switched to purchasing the products of new entrants in the market. The reason is that the new firms attracted by the economic profits will enter into the market and the consumers will now find more substitutes to choose from.

Thus the correct option should be some of its customers have switched to purchasing the products of new entrants in the market.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.