Suppose coffee is sold in a monopolistically competitive market, where coffee is differentiated by coffee shop location. As firms enter in the long run and the price of coffee falls:
A. the market quantity of coffee demanded will increase, but the quantity of coffee supplied by any individual coffee shop declines.
B. the market quantity of coffee demanded will decrease as does the quantity supplied from any individual coffee shop.
C. the average costs of production decline.
D. the profits of individual coffee shops increase.
Answer: A
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A. lower; potential B. higher; higher C. higher; potential D. lower; higher
Data analysis or interpretation mistakes (that econ can help one avoid)
What will be an ideal response?