The Diagram Below Shows Demand and Cost Curves for a Monopolistically

question 26

Multiple Choice

The diagram below shows demand and cost curves for a monopolistically competitive firm.
FIGURE 11- 3
-Refer to Figure 11- 3.If an increase in industry demand led to an outward shift in each firm's demand curve,and no change to the firm's costs,the typical firm would

• A)be making profits and new firms would enter the industry in the long run.
• B)be making losses and some firms would exit the industry in the long run.
• C)decrease costs in order to break even at P1 and Q1 in the long run.
• D)increase costs in order to break even at P1 and Q1 in the long run.
• E)would expand its output in the long run.

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Definitions:

Cross Elasticity

A measure of how the demand for one good responds to a change in the price of another good, indicating the degree of substitutability or complementarity between the two goods.

Complements

Goods or services that are used together, where the increase in consumption of one leads to an increase in consumption of the other.

Substitutes

Goods or services that can be used in place of each other, where an increase in the price of one leads to an increase in the demand for the other.

Elasticity Coefficient

Refers to a numerical measurement of how responsive an economic variable is to a change in another variable.