Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation willMultiple Choicereduce the excess capacity in the industry as firms expand production.attract other firms to enter the industry, causing the existing firms’ profits to shrink.cause firms to standardize their product to limit the degree of competition.make the industry allocatively efficient as each firm seeks to maintain its profits.

If firms in a perfectly competitive industry are earning economic profits (select all that apply),  We expect firms in this industry to earn smaller economic profits in the future.   We expect to see higher cost firms exit this industry to seek greater return on their capital in other markets.   We expect new producers to stop entering the market when market price equals minimum average total cost.   Consumers' willingness to pay above market rates will create inefficiency in long-run production.

Monopolistic competition is characterized by firmsMultiple Choiceproducing differentiated products.making economic profits in the long run.producing at optimal productive efficiency.producing where price equals marginal cost.

If the market for products produced by firms in a monopolistically competitive industrybecomes ________, then there will be ________ firms and each firm will produce ________output and charge a ________ price.A) larger; fewer; more; higherB) larger; more; less; higherC) larger; fewer; more; lowerD) larger; more; more; lowerE) larger; more; more; higher

In perfect competition, if the market price of the product is initially higher than the minimum average total cost faced by the firms, thenMultiple Choicesome firms will exit the industry and the industry supply will decrease.other firms will enter the industry and the industry supply will increase.some firms will exit the industry and the industry supply will increase.other firms will enter the industry and the industry supply will decrease.

In the long run, a representative firm in a monopolistically competitive industry will end upMultiple Choicehaving an elasticity of demand that will be less than it was in the short run.having a larger number of competitors than it will in the short run.producing a level of output at which marginal cost and price are equal.earning a normal profit, so zero economic profit.