The diagram presents the marginal cost (MC), average cost (AC), marginal revenue (MR) and average revenue (AR) curves for a profit-maximising firm in monopolistic competition. On the basis of its profit, and assuming there is no market growth, what is likely to occur to the demand for this firm’s output in the long run?
- AThe short-run profit position will encourage other firms to enter the market and the firm’s demand curve will shift to the left.
- BThe short-run profit position will encourage other firms to enter the market and the firm’s demand curve will shift to the right.
- CThe short-run profit position will encourage other firms to exit the market and the firm’s demand curve will shift to the left.
- DThe short-run profit position will encourage other firms to exit the market and the firm’s demand curve will shift to the right.