**Understanding Monopolistically Competitive Markets: Long-Run Adjustments**The graph presented illustrates the cost and revenue dynamics of a monopolistically competitive firm in the long run. Key curves and points are labeled as follows:- **MC (Marginal Cost)**: This curve represents the additional cost incurred by producing one more unit of the product.- **AC (Average Cost)**: This curve shows the average cost per unit of production.- **MR (Marginal Revenue)**: This curve indicates the additional revenue earned from selling one more unit of the product.- **D (Demand)**: This curve reflects the relationship between the price of the product and the quantity demanded by consumers.In the graph, the Y-axis represents the "Price, cost, revenue" ranging from $50 to $100, while the X-axis represents "Dresses per year" ranging from 0 to 21,000.### Graph Explanation:- The **Demand (D)** curve is downward sloping, indicating that higher prices lead to lower quantities demanded.- The **Marginal Cost (MC)** and **Average Cost (AC)** curves represent the firm's cost structure. The intersection of MC and AC usually indicates the efficient scale of production.- The **Marginal Revenue (MR)** curve typically lies below the demand curve in monopolistic competition due to the firm's downward-sloping demand curve.### Key Observation:The firm is in long-run equilibrium where the MR curve intersects the MC curve, determining the profit-maximizing level of output.### Question Analysis:**"Refer to the graph shown of a monopolistically competitive firm. In the long run:"**The possible answers are:- Marginal cost will fall for firms that remain as other firms exit the industry.- Demand will fall for firms that remain as other firms enter the industry.- Demand will rise for firms that remain as other firms exit the industry.- Average total cost will rise for firms that remain as other firms enter the industry.To determine the correct answer, consider the impact of firms entering or exiting the market:- **Entry of Firms**: When new firms enter the market, the demand curve for each existing firm shifts leftward as the market share diminishes, generally leading to a fall in demand for incumbent firms.- **Exit of Firms**: Conversely, when firms exit the market, the remaining firms experience an increase in demand as the remaining market share is redistributed.Therefore, the correct answer is:- **Demand will

"Monopolistically competitive industry consists of many firms which sell commodities or services…

Price, cost, revenue $100 $90 $80 $70 $60 $50 0000 MC MR D 0 7000 14000 21000 12000 Dresses per year Refer to the graph shown of a monopolistically competitive firm. In the long run: marginal cost will fall for firms that remain as other firms exit the industry. demand will fall for firms that remain as other firms enter the industry. Odemand will rise for firms that remain as other firms exit the industry. average total cost will rise for firms that remain as other firms enter the industry. AC

Price, cost, revenue $100 $90 $80 $70 $60 $50 0000 MC MR D 0 7000 14000 21000 12000 Dresses per year Refer to the graph shown of a monopolistically competitive firm. In the long run: marginal cost will fall for firms that remain as other firms exit the industry. demand will fall for firms that remain as other firms enter the industry. Odemand will rise for firms that remain as other firms exit the industry. average total cost will rise for firms that remain as other firms enter the industry. AC

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Westchesser Gloves is a monopolistically competitive firm that sells leather gloves. Use the graph to highlight the area of profit or loss and answer the questions, Price per pair (5) 10 20 Marginal profit or loss: $ Aver co Pairs of gloves (in thousand) Demand 70 80 90 100 Profit or loss Calculate Westchesser's profit or loss at the profit-maximizing price. What will happen to the number of firms in this industry in the long run? Firms will enter this industry, increasing the price at which each firm can sell their gloves until firms begin to earn normal profits. O Firms will exit this industry, increasing the price at which each firm can sell their gloves until firms begin to carn normal profits. O Firms will exit this industry, decreasing the price at which each firm can sell their gloves until firms begin to carn normal profits. O Firms will enter this industry, decreasing the price at which each firm can sell their gloves until firma begin to carn normal profits
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Q. 2