Question

In the short run, a monopolistically competitive firm produces at the optimal level of output and is earning positive economic profits. In the long run, the _____ of firms shifts the firm's demand and marginal revenue curves _____ the firm's level of output and _____ the price it can charge until price equals average total cost.a. Entry; leftward, decreasing; decreasingb. Entry; leftward, decreasing; increasingc. Entry; downward, decreasing; decreasingd. Exit; rightward, increasing; increasing

Answer 1

Is (A) entry; leftward, decreasing; decreasing.

Exsample:

Because there are no barriers to entry, if economic profits are being earned, new firms will enter the market. When new firms enter the market, they will capture a share of the market, which will decrease the demand of the existing firms (leftward shift). The decreasing demand will decrease the output and price levels for each firm, which will cause their profits to decline. This process will continue until the market reaches a long-run profit level of zero for all firms.

Because there are no barriers to entry, if economic profits are being earned, new firms will enter the market. When new firms enter the market, they will capture a share of the market, which will decrease the demand of the existing firms (leftward shift). The decreasing demand will decrease the output and price levels for each firm, which will cause their profits to decline. This process will continue until the market reaches a long-run profit level of zero for all firms.