Firm X competes in a monopolistically competitive market. Suddenly, new firms en

Question

Firm X competes in a monopolistically competitive market. Suddenly, new firms enter the market, causing X’s perceived demand curve to shift. The following tables show X’s original and new demand curves and X’s cost information. If X can only choose from the quantities of output given in the table, by how much will the quantity that it produces change after the new firms enter the market?

-the profit maximizing output will fall by 10 units

-the profit maximizing output will fall by 5 units

-the profit maximizing output will rise by 10 units

-the profit maximizing output will rise by 5 units

Original Demand Curve Price Quantity TC 30 0 $130 25 10 $140 20 20 $260 15 30 $450 10 40 $660 New Demand Curve Price Quantity TC 25 0 $130 20 10 $140 15 20 $260 10 30 $450 5 40 $660

Explanation / Answer

-the profit maximizing output will fall by 10 units

As, the firm will sell till MR will be greater than MC, So in original case, he was produce 20 units, and after entry of other firms, he is now producing 10 units, So, there is fall of output by 10 units.

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