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 _,which _ the firm's level of output and ___ the price it can charge until price equals average total cost.

A) entry;leftward,decreases;decreases
B) entry;leftward,decreases;increases
C) entry;downward,decreases;decreases
D) exit;rightward,increases;increases

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 _____,which _____ the firm's level of output and _____ the price it can charge until price equals average total cost.

A) entry;leftward,decreases;decreases
B) entry;leftward,decreases;increases
C) entry;downward,decreases;decreases
D) exit;rightward,increases;increases

bhanu sharma · Accepted Answer

Final Answer : A, Explanation :  In monopolistic competition, firms have a relatively low barrier to entry, which means that in the long run, new firms will enter the market, increasing competition. This influx of new firms shifts the demand curve for existing firms to the left, as there are now more substitutes available for consumers to choose from. As a result, the firm's marginal revenue curve also shifts leftward, decreasing the firm's level of output and decreasing the price it can charge until it equals average total cost.

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