Refer to the above graph. It represents a monopolistically competitive firm in a constant-cost industry. In long-run equilibrium this firm will:
A. continue to earn economic profits because it has monopolistic power to set its price.
B. break even because its demand curve will fall and become more elastic as it loses sales to other firms entering the market.
C. become a perfectly competitive firm because there are no significant barriers to entry.
D. break even because average total cost (ATC) and marginal cost (MC) will increase as more firms enter the market.
Answer: B
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