Restaurants offer related but differentiated products to their consumers. In the

Question

Restaurants offer related but differentiated products to their consumers. In the long run, new restaurants enter the market and imitate the cuisine and atmosphere of successful competitors. With this in mind, which of the following statements would be correct about a restaurant's prices in the long run? Instructions: You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers 2 In the long run, restaurants will enter the market as long as there are positive profits 7 In the long run some restaurants will leave the market, creating economic profits for those restaurants who stay Price will be equal to MC and be greater than ATC ine long run. 2 As more competitors and substitutes enter, the demand curve for a particular restaurant will shift to the right 2 Price will be equal to ATC in thie long run for firms in a monopolistically compettive market. 2 In the long run, profits will be normal for the restaurants in a monopolistically competitive market.

Explanation / Answer

Option 1, 5 and 6 are correct

1 is correct because higher profits induces firms to enter

5 is correct because in the long run firms in monopolistic competition breaks even because of entry due to profits in the short run.

6 is correct because price = ATC in the long run.

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