Monopolistic Competition

The market for peanut butter in Nutville is monopolistically competitive and in long-run equilibrium. One day, consumer advocate Skippy Jif discovers that all brandsof peanut butter in Nutville are identical. Thereafter, the market becomes perfectly competitive and again reaches its long-run equilibrium. Using an appropriatediagram, expalin whether each of the following variables increases, decreases, or stays the same for a typical firm in the market.
a. price
b. quantity
c. average total cost
d. marginal cost
e. profit

Solutions

Expert Solution

a. price will go down
b. quantity will go up
c. average total cost will go up
d. marginal cost will go up
e. profit will go down

Rahul Sunny answered 2 years ago

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