Question 1
Refer to the information provided in Figure 15.2 below to answer the question(s) that follow.
Refer to Figure 15.2. In this monopolistically competitive industry, in the long run
◦ firms will enter until all firms break even economically.
◦ firms will suffer economic losses profits.
◦ demand for the product will increase so that profits are increased.
◦ product supply will decrease so prices will go up.
Question 2
Mama Lena's, a frozen food producer, is a monopolistically competitive firm. Mama Lena's is currently selling frozen lasagna at a price of $10. Mama Lena's marginal cost is $5 and marginal revenue is $5. This firm should ________ to maximize profits in the short run.
◦ increase output to where price just equals marginal cost
◦ decrease output to where price just equals marginal cost
◦ continue to produce the same output level
◦ Indeterminate from the given information.
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