The following figure shows the revenue and cost curves for a typical monopolistically competitive firm in the

Question:

The following figure shows the revenue and cost curves for a typical monopolistically competitive firm in the short run.

a. Note that the firm's demand curve is shown to be quite flat. Explain which assumption of monopolistic competition suggests a relatively elastic demand curve for each firm.
b. Show the profit-maximizing level of output for the firm on the diagram.
c. At the profit-maximizing level of output, are profits positive or negative? What area in the diagram represents the firm's profits?
d. Will firms enter or exit the industry? Explain.