1. There are 6 pizza restaurants in Seaside, Oregon. Each sells a slightly diffe
ID: 1214258 • Letter: 1
Question
1.
There are 6 pizza restaurants in Seaside, Oregon. Each sells a slightly different type of pizza (Chicago style, take and bake, organic, New York style, gourmet, and deep dish), thus the market can be characterized by monopolistic competition. The following diagram shows the demand curve for a typical restaurant in this market. Assume that economic profits are positive for the typical restaurant.If the situation persists in the pizza restaurant market in Seaside, what will happen to the number of restaurants in the pizza market? Use the line drawing tool to illustrate what this will do to the typical restaurant's demand curve. Label the new curve D2.
Explanation / Answer
when firms are making economic profit then other firms enter into this industry as this will be profitable for them. soo supply increases but demand for each firm decreases . so demand curve shift left.
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