Consider a Monopolistically Competitive Industry in Long-Run Equilibrium

question 108

Multiple Choice

Consider a monopolistically competitive industry in long-run equilibrium. Suppose there is a large increase in wages that raises the costs for all firms. What happens within each firm in the short run?

• A)They will be forced to close down due to the excess costs.
• B)They will continue producing as before, cushioned by their previous excess profits.
• C)They will expand output and try to make up for lost profits.
• D)They will lower prices and try to steal customers away from their rivals.
• E)They will decrease production and produce the quantity at which marginal revenue equals the new (higher)marginal cost curve; this means a rise in price.

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