In monopolistically competitive markets, positive economic profits ____________ which shifts the demand curve of incumbent firms ___________ :Group of answer choicessignal some incumbent firms to exit; downwards.signal some incumbent firms to exit; upwards.signal new firms to enter; to the left.signal new firms to enter; to the right.signal some incumbent firms to exit; to the right.
Question
In monopolistically competitive markets, positive economic profits ____________ which shifts the demand curve of incumbent firms ___________ :Group of answer choicessignal some incumbent firms to exit; downwards.signal some incumbent firms to exit; upwards.signal new firms to enter; to the left.signal new firms to enter; to the right.signal some incumbent firms to exit; to the right.
Solution
In monopolistically competitive markets, positive economic profits signal new firms to enter; this shifts the demand curve of incumbent firms to the left.
Here's why:
-
In a monopolistically competitive market, firms have some degree of market power, which means they can set their own prices to some extent.
-
When incumbent firms are making positive economic profits, it signals that the industry is profitable.
-
This attracts new firms to enter the market, as they are also looking to make a profit.
-
As new firms enter the market, the demand for the products of the incumbent firms decreases because consumers now have more options to choose from.
-
This decrease in demand shifts the demand curve of the incumbent firms to the left.
So, the correct answer is: "signal new firms to enter; to the left."
Similar Questions
In monopolistically competitive markets, economic losses:Group of answer choicessignal new firms to enter, which shifts the demand curve of the remaining firms to the left.signal new firms to enter, which shifts the supply curve of the remaining firms to the left.signal new firms to enter, which shifts the demand curve of the remaining firms downwards.signal some incumbent firms to exit, which shifts the supply curve of the remaining firms upwards.signal some incumbent firms to exit, which shifts the demand curve of the remaining firms to the right.
If firms in a competitive market are making positive economic profits, you would expect firms to __________ the market, causing the market __________ curve to shift to the __________.Group of answer choicesenter; demand; leftleave; supply; leftenter; supply; rightenter; demand; rightenter; supply; left
Suppose some firms exit an industry characterized by monopolistic competition. We would expect the demand curve of a firm already in the industry toMultiple Choiceshift to the left.shift to the right.become less elastic.remain the same since entering firms serve other customers in the market.
Monopolistically competitive firms face downward sloping residual demand curves because these firmsGroup of answer choiceshave relatively few rivals (compared to competition).sell differentiated products.Both A and B.None of the above. PreviousNext
Markets of perfectly competitive firms and monopolies both _________.Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.ahave barriers to entrybhave downward sloping demand curvescare easy to enter and exit
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.