Suppose the market for fast-food value meals is monopolistically competitive, wi

Question

Suppose the market for fast-food value meals is monopolistically competitive, with 0 0 many restaurants selling their own brand of food Assume the restaurants in the industry behave optimally by maximizing profit. The figure to the right represents the market for one monopolistically competitive 8.0 7.6 7.2 6.8 6.4 6.0 5.6 2 5.2 4.8 4.4 4.0 3.6 3.2 2.8 2.4 2.0 a 1.6 1.2 0.8 0.4 0.0 0 MC ATC firm's value meals How will this figure change as the market moves toward long-run equilibrium? In the long run O A. nothing will change because monopolistically competitive markets have barriers to new firms entering he average cost curve and the marginal cost curve will shift down use the firms are currently experiencing losses C. the demand curve will shift to the left and become more inelastic because O D. the demand curve will shift to the right and become more inelastic E. nothing will change because the firms in this market are breaking even the firms are currently making profit. 4 6 8 10 12 14 16 18 20 Quantity (value meals) because the firms are currently experiencing losses

Explanation / Answer

Solution:

The correct answer is option 'D'

Because as per the graph when the market for fast food value is monopolistically competitive and with many restaurants and selling their own food, then in the long run, the demand curve will lead to shift and it became more inelastic because now the firms are facing losses. Thanks!

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