The model of monopolistic competition can characterize the market for plumbing services in a city.This market is initially in long-run equilibrium, but then there is an increase in demand for plumbing services.We expect that in the long run:
A)firms will leave the plumbing market.
B)there will be a short-run increase in the number of firms, but then the number will return to the original level.
C)new firms will enter the plumbing market.
D)firms will shut down, but they will not leave the industry.

Question

Quizplus · Accepted Answer

In the long run, the increase in demand for plumbing services will create profits for the existing firms, which will incentivize new firms to enter the market. This will increase competition and likely lead to a decrease in profits for each individual firm in the long run. Therefore, new firms will enter the plumbing market to take advantage of the profit opportunities created by the increase in demand.

The Model of Monopolistic Competition Can Characterize the Market for Plumbing