Question

If firms in a monopolistically competitive market are earning economic profits, which of thefollowing scenarios best reflects the change a representative firm experiences as the market adjuststo its long-run equilibrium?

A) Demand increases and becomes less elastic.
B) Demand decreases and becomes more elastic.
C) Demand increases and becomes more elastic.
D) Demand decreases and becomes less elastic.

Answer 1

B) Demand decreases and becomes more elastic.

Step-by-step explanation:

In this example, we are talking about firms that compete in a monopolistically competitive market. A monopoly is a market structure that occurs when a company is the only supplier of a good. Under the situation described, the change a firm would experience is that demand decreases and becomes more elastic. The elasticity of demand refers to how responsive demand is to a change in another economic factor.