Question

Figure 15P-2 shows the monopolistically competitive market for smartphones.

b. In the long run, will supply or demand for this producer's good be affected? Will economic profits increase or decrease for this producer?

Solution

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Answered 1 year ago
Answered 1 year ago

The negative profit will reduce the number of players in the market as some firms will exit in the short run. Thus, with the decreased competitors, firms will experience an increase in their demand in the long run. This will result to higher prices to the point that it will be equal to the average total cost.

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