Economics (AS & A Level) · Feb / March 2022 · Paper 32 · Question 9

The diagram shows the marginal cost (MC), average cost (AC), marginal revenue (MR) and average revenue (AR) curves of a profit-maximising, monopolistically competitive firm. Based on its profit, and assuming no market growth, what is likely to happen to the demand for this firm's output in the long run?

1. AThe short-run profit position will encourage other firms to enter the market and the firm's demand curve will shift to the left.
2. BThe short-run profit position will encourage other firms to enter the market and the firm's demand curve will shift to the right.
3. CThe short-run profit position will encourage other firms to exit the market and the firm's demand curve will shift to the left.
4. DThe short-run profit position will encourage other firms to exit the market and the firm's demand curve will shift to the right.

As printed in the paper