What effect does the entry of new firms in a monopolistically competitive market have on the economic profits of existing firms in the market? How might existing firms attempt to counteract this effect?
What will be an ideal response?
New firms entering an industry cause the demand curves for the products of existing firms to shift to the left. Existing firms will be able to sell less at every price, so their profits will decline. If existing firms can find new ways to differentiate their products or find new ways to lower their cost of production, they have a better chance of maintaining profits as other firms enter the market.
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Based on the figure below. Starting from long-run equilibrium at point C, an increase in government spending that increases aggregate demand from AD to AD1 will lead to a short-run equilibrium at point ________ creating _____gap. 
A. D; an expansionary B. B; no output C. B; expansionary D. A; a recessionary
Which statement(s) are most likely correct about supply?
a. A rise in price almost always leads to an increase in the quantity supplied of that good. b. A rise in price almost always leads to a decrease in the quantity supplied of that good. c. A fall in price almost always lead to an increase the quantity supplied. d. A rise in price almost always leader to an increase in the quantity demanded of that good.
Sage decides to cash in all his savings to open a recording studio. He has three accounts to cash in. The first earned 9 percent for two years. The second earned 6 percent for three years. And the last earned 3 percent for six years. Supposing he started with $5,000 in each account, from which account will he get the most cash?
a. the two-year account at 9 percent b. the three-year account at 6 percent c. the six-year account at 3 percent d. The accounts are all worth the same.
If the expected future price of oil falls, then
A. the equilibrium price and quantity will not change. B. the current equilibrium price will fall, and the current equilibrium quantity will fall. C. the current equilibrium price and quantity will both fall. D. the equilibrium price will fall, but the change in the equilibrium quantity will depend on whether the demand change outweighs the supply change.