Long run in markets with monopolistic competition

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Reference no: EM13834227

1. What would always happen in a competitive market if supply shifts out (or shifts right) and demand shifts in (or shifts left/down)?

a. decrease in quantity

b. decrease in price

c. increase in price

d. increase in quantity

2. Why do firms earn zero profits in the long run in markets with monopolistic competition?

a. Entry and exit by competitors shifts demand so that price equals average total cost at the profit-maximizing quantity.

b. Competitors products are perfect substitutes, so all firms must use the market price.

c. Firms set price equal to marginal cost.

d. Firms set price equal to total fixed cost.

3. Consider a perfectly competitive market where demand is given by P=84.20-2.15Q and supply is given by P=12.78+1.20Q. Calculate the equilibrium quantity.

Reference no: EM13834227

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