Answer to Question #52962 in Microeconomics for Yana

Question

1. The short - run equilibrium for a monopolistically competitive firm is at P = $28.47, ATC = $22.13, and MC = MR = $17.47. Which of the following is true?
a. Per - unit profit is $11.
b. Additional firms will be attracted into the industry.
c. The firm could raise price and increase profits.
d. The firm could lower price and increase profits.
e. Average cost must be rising.

2. The entry of new firms into a monopolistic competitive industry will shift the:
a. market demand curve to the right.
b. market demand curve to the left.
c. existing firm's demand curve to the right.
d. existing firm's demand curve to the left.
e. market supply curve to the left

Answer 1

1. P = $28.47, ATC = $22.13, and MC = MR = $17.47. 
As P > ATC and MR = MC, then the only true answer is:
b. Additional firms will be attracted into the industry.
2. The entry of new firms into a monopolistic competitive industry will shift the:
d. existing firm's demand curve to the left.