Which of the following will happen if some firms in a monopolistically competitive market incur losses in the short run and the market conditions are not expected to change?
A) The existing firms will continue production in the long run.
B) The demand for the goods produced by the firms will decrease.
C) New firms will enter the industry in the long run.
D) Some firms will exit the industry in the long run.
Question 2
During the past twenty years, the prices of prescription drugs, relative to the prices of other goods, have risen, yet Americans buy more prescription drugs than ever. This might be because
A) with higher incomes and more older Americans, we have moved rightward along our demand curve for drugs.
B) with higher incomes and more older Americans, the demand curve for prescription drugs has shifted rightward.
C) more new firms entered the pharmaceutical industry each year, which caused a rightward shift in the supply curve of prescription drugs.
D) Both answers A and C are correct.
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