Question

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

Answer 1

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