Answered: Suppose the market for fast-food value…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Transcribed Image Text:Suppose the market for fast-food value meals is monopolistically competitive, with many restaurants selling their own brand of food. Assume the restaurants in the industry behave optimally by maximizing profit. The figure to the right represents the market for one monopolistically competitive firm's value meals. How will this figure change as the market moves toward long-run equilibrium? In the long run, O A. the average cost curve and the marginal cost curve will shift up because the firms are currently making profit. O B. the demand curve will shift to the left and become more elastic because the firms are currently making profit. nothing will change because monopolistically competitive markets have barriers to new firms entering. OC. O D. the demand curve will shift to the right and become more elastic because the firms are currently experiencing losses. O E. nothing will change because the firms in this market are breaking even. Price and cost (per value meal) 8.00- 7.60- 7.20 6.80 6.404 6.00 5.60- 5.20- 4.80 4.40 4.00 3.60 3.20 2.80 2.40 82.00- 1.60 1.20- 0.80- 0.40- 0.001 0 2 4 MC ATC MR D 6 8 10 12 14 16 18 20 Quantity (value meals)

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