Westchester Gloves is a monopolistically competitive firm that sells leather glo

Question

Westchester Gloves is a monopolistically competitive firm that sells leather gloves. Use the graph below to highlight the area of profit or loss and answer the questions. Calculate Westchesser's profit/loss at the profit maximizing price and enter it below. What will happen to the number of firms in this industry in the long run? Firms will exit this industry decreasing the price each firm can sell their gloves at until economic profit equals zero. Firms will exit this industry increasing the price each firm can sell their gloves at until economic profit is zero. Firms will enter this industry increasing the price each firm can sell their gloves at until economic profit is zero. Firms will enter this industry decreasing the price each firm can sell their gloves at until economic profit equals zero.

Explanation / Answer

Answer 2. Profit =( contribution multiplied by sales) = $1*40 units = $40

Answer 3. Since there is super economic profits in this business, more firms will enter production till ATC = Price ( Demand) In this case price will fall toaround $4 ( assuming that the long-run ATC is the same as the SR ATC)

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