Chapter 12R, Problem 19MCQ

To determine

The correct option that happens to the number of firms in this industry and the output level per firm.

Answer to Problem 19MCQ

Option a is correct.

Explanation of Solution

Explanation for correct option:

a.

In the long run, monopolistic competitive firm will decrease as they leave the industry due to low profit whereas the output level of existing firm increases to meet the existing demand. Therefore, option a is correct.

Explanation for incorrect options:

b.

As the number of firms decreases in long run, the demand increases in the long run. It is required to increase the output level instead of decreasing it. It happens because these firms work on excess capacity due to which it could not produce at minimum ATC. Therefore, option b is also incorrect.

c.

In monopolistic competitive industry, firm’s decreases but the output level is increased due to increasing demand. Therefore, option c is incorrect.

d.

Firms in this industry decreases as they suffer losses in log run. Though the output level is increased by existing firms. Therefore, option d is incorrect.

e.

Firms are decreased due to losses they suffered. Also, output level is increased by the existing firms in long run which can manage to survive. Therefore, option e is incorrect

Economics Concept Introduction

Monopolistic market structure: Market structure where there are many firms selling identical but products with different features. There are low barriers to entry and exit which allows firms to enter the market easily.