Standard theory of monopolistically competitive firms

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The standard theory of monopolistically competitive firms maintains that, in the long run, such firms will operate at less than full capacity. Does this result depend on whether firms produce identical or differentiated products? Explain. Suppose the government levies a tax of $1 per unit of output. What will happen in the long run to firms’ profits? How does entry or exit affect this result? Explain. Suppose the government levies a tax of $1 per unit of output. What will happen in the long run to firms’ profits? How does entry or exit affect this result? Explain.

Reference no: EM131088649

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