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If firms in a monopolistically competitive market are earning economic profits, which of thefollowing scenarios best reflects the change a representative firm experiences as the market adjuststo its long-run equilibrium?

A) Demand increases and becomes less elastic.
B) Demand decreases and becomes more elastic.
C) Demand increases and becomes more elastic.
D) Demand decreases and becomes less elastic.

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Answer:

B) Demand decreases and becomes more elastic.

Explanation:

In this example, we are talking about firms that compete in a monopolistically competitive market. A monopoly is a market structure that occurs when a company is the only supplier of a good. Under the situation described, the change a firm would experience is that demand decreases and becomes more elastic. The elasticity of demand refers to how responsive demand is to a change in another economic factor.

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