Suppose that in the short run firms are making economic profit in a monopolistically competitive industry. Explain what will eventually happen in the long run
In your answer make sure to discuss demand, price and the relationship between price and average total cost.
In the long run firms will be attracted to the industry. Entry will cause the demand curve faced by each individual firm to shift inward and become more elastic as consumer find that there are more substitutes. This will continue until the demand curve becomes tangent with average total cost. At this point price will just equal to average total cost and all of the firms in the industry will be enjoying normal profit. The industry in now in a long-run equilibrium situation since there is no incentive for further entry.
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a. True b. False Indicate whether the statement is true or false
Which of the following statements is correct about measuring collective demand for public and private goods?
A. Both public and private good demand are found by horizontally adding individual demand curves. B. Private good demand is found by horizontally adding individual demand curves; public good demand is found by vertically adding individual demand curves. C. Both public and private good demand are found by vertically adding individual demand curves. D. Public good demand is found by horizontally adding individual demand curves; private good demand is found by vertically adding individual demand curves.