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Author Question: The industry for personal care products in Richland is monopolistically competitive in nature. The ... (Read 51 times)

piesebel

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on: Jun 29, 2018
The industry for personal care products in Richland is monopolistically competitive in nature. The firms in this industry earn positive economic profits in the short run.
 
  Do the firms continue to earn positive profits in the long run? Explain your answer.

Question 2

Which of the following statements is true?
 
  A) Rational economic agents maximize more than just monetary income.
  B) An individual does not require information to make optimal decisions.
  C) The principle of optimization is only accurate when it comes to making monetary decisions.
  D) It is not necessary to consider the risks of a particular alternative while making an optimal decision.


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huda

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Reply #1 on: Jun 29, 2018
Answer to Question 1

If firms in a monopolistically competitive market earn positive economic profits, new firms enter the industry in the long run. As new firms enter the industry, the demand curves faced by the existing firms become flatter. This is because demand for a good becomes more elastic when there are more substitutes. The demand curve faced by existing firms also shifts to the left because market demand is now split between more firms. As a result, the firms optimize at a lower quantity and charge a lower price for their respective products. This in turn reduces the profits earned by the firms in the industry. The entry of new firms continues until the existing firms earn zero economic profits.

Answer to Question 2

A


piesebel

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Reply #2 on: Jun 29, 2018
Thank you :)


huda

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Reply #3 on: Jun 29, 2018
Happy to help you


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