Question

General Snacks is a typical firm in a market characterized by the model of monopolistic competition. Initially, the market is initially in long-run equilibrium, and then there is an increase in demand for snacks. We expect that: Group of answer choices in the long run, new firms will enter the market. there will be a short-run increase in the number of firms, but in the long run the number of firms will return to the original level. firms will leave the market in the long run. firms will shut down, but they will not leave the industry in the long run.

Answer 1

Firms will leave the market in the long run.

Step-by-step explanation:

Firms will leave the market in the long run.

Generally, the new firms enters in the market because the incumbent firms makes super normal profit. So in the long run, the continuous entry of firms will make the profit zero. Thus, when there is zero profit in the long run then the firms will start leaving the market and the demand for remaining firms will start rising because when firms start leaving the market then supply falls.