2. Draw a diagram depicting a firm in a monopolistically competitive market that is making profits in

Question:

2. Draw a diagram depicting a firm in a monopolistically competitive market that is making profits in the short run.

a. Now show what happens to this firm as new firms enter the industry.

b. Now draw the diagram of the long-run equilibrium in a monopolistically competitive market. How is price related to average total cost? How is price related to marginal cost?

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