Long-run profit earned by a monopolistically competitive firm is driven to the competitive?
Long-run profit earned by a monopolistically competitive firm is driven to the competitive level due to a shift in its
a) demand curve
b) supply curve
c) average cost curve
d) all of the above
Answer:
I would say supply curve (B). Why? Because when pure or positive economic profit exists in the market, entry will be encouraged. Since this model is a competitive model, new firms will enter the market and market supply will increase. Competitive markets have few or no barriers to entry, thus entry is possible. This increase in supply will drive the price of the product down and "squeeze out" the pure profit. The model will rest with price being very close to costs and firms making just a normal profit.
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a) demand curve
b) supply curve
c) average cost curve
d) all of the above
Answer:
I would say supply curve (B). Why? Because when pure or positive economic profit exists in the market, entry will be encouraged. Since this model is a competitive model, new firms will enter the market and market supply will increase. Competitive markets have few or no barriers to entry, thus entry is possible. This increase in supply will drive the price of the product down and "squeeze out" the pure profit. The model will rest with price being very close to costs and firms making just a normal profit.
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