The Diagram Below Shows Demand and Cost Curves for a Monopolistically

question 74

Multiple Choice

The diagram below shows demand and cost curves for a monopolistically competitive firm. FIGURE 11- 3
-Refer to Figure 11- 3. If a decrease in industry demand led to an inward shift of each firm's demand curve, a typical firm would

• A) be making profits and new firms would enter the industry in the long run.
• B) decrease costs in order to break even at PL and QL in the long run.
• C) exit the industry and the industry would shut down.
• D) be making losses and some firms would exit the industry in the long run.
• E) increase costs in order to break even at PL and QL in the long run.

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Definitions:

Advertising

The process or occupation involved in making adverts for business products or services.

Product Differentiation

The practice of differentiating a product or service to appeal more to a specific target market.

Allocative Efficiency

A state of resource allocation where it is impossible to make any one individual better off without making someone else worse off, effectively maximizing overall social welfare.

Productive Efficiency

A situation where an economy or entity cannot produce more of one good without reducing the output of another good, indicating optimal resource allocation.