Monopolistic Competition in the Long-run

Assume you are one of many pizza restaurants in a small town. You and other existing pizza restaurants are earning a profit.

1. Is the market for pizza in the town in long-run equilibrium? Explain.

2. What will happen to the number of firms in this industry? Explain.

3. How will your demand and marginal revenue curves change over time as a result of this change in the number of firms?

4. What will happen to your price and profits over time? Explain.

5. What will be true of your profit when the market reaches long-run equilibrium? Explain. 6. Is a monopolistically competitive market efficient? Explain.

7. Explain excess capacity.