Figure 16-5
-Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?
A)panel a
B)panel b
C)panel c
D)panel d

Question

Figure 16-5 
-Refer to Figure 16-5. Which of the graphs depicts a short-run equilibrium that will encourage the exit of some firms from a monopolistically competitive industry?
A)panel a 
B)panel b 
C)panel c 
D)panel d

Quizplus · Accepted Answer

In panel b, the price is below the average total cost curve (ATC) of the firms, which means that they are making losses. In the short-run, some firms may exit the industry in order to avoid further losses. This will reduce the supply in the industry, and could eventually lead to a higher price and a new long-run equilibrium.

Figure 16-5 -Refer to Figure 16-5. Which of the Graphs Depicts a Graphs