Answer the question on the basis of the following demand and cost data for a specific firm. $ \quad$$ \quad$$ \quad$$ \quad$$\text { Demand Data }$ $ \quad$$ \quad$$ \quad$ $\text { Cost Data }$
$\begin{array}{|c|c|c|c|c|}
\hline&&(3)&\text { Total } \
\text { (1) } & \text { (2) } & \text { Quantit } & \text { Output } & \text { Total } \
\text { Price } & \text { Price } & \text { Y} & & \text { Cost }\
\hline \$ 50 & \$ 35 & 2 & 2 & \$ 45 \
\hline 45 & 30 & 3 & 3 & 55 \
\hline 40 & 25 & 4 & 4 & 70 \
\hline 35 & 20 & 5 & 5 & 90 \
\hline 30 & 15 & 6 & 6 & 115 \
\hline 25 & 10 & 7 & 7 & 145 \
\hline 20 & 5 & 8 & 8 & 180 \
\hline
\end{array}$ In the long run, the number of firms in this monopolistic competitive industry will most likely
A) decrease.
B) increase.
C) stay the same.
D) The answer cannot be determined from the given data.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms are able to differentiate their products to some extent, which allows them to have some degree of market power. As such, they are able to charge prices that are higher than their marginal costs in the short run. However, in the long run, other firms are able to enter the market and offer similar, differentiated products, which leads to increased competition and decreases the market power of each individual firm.

In this particular scenario, the cost data suggests that this firm is currently operating at a loss in the short run, since its total costs exceed its total revenue at all levels of output. If this trend persists, the firm will be forced to exit the market in the long run. However, if the firm is able to make changes (such as reducing costs or increasing demand) that allow it to operate at a profit, then other firms may be attracted to enter the market as well. This would suggest that the number of firms in the market will most likely increase in the long run, as more firms are able to offer differentiated products and capture a portion of the market. Therefore, the best answer is B: increase.

Answer the Question on the Basis of the Following Demand \quad

Answer the Question on the Basis of the Following Demand $\quad$