Consider a monopolistically competitive industry in long-run equilibrium. Suppose there is a large increase in wages that raises the costs for all firms. What happens within each firm in the short run?

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Answer

Each firm will be forced to close down due to the increased costs.

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Each firm will expand output and try to make up for lost profits.

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Each firm will lower its price and try to steal customers away from their rivals.

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Each firm will decrease production and produce the quantity at which marginal revenue equals the new (higher) marginal cost.

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Each firm will continue producing as before, cushioned by their previous profits.

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Consider a monopolistically competitive industry in long-run equilibrium. Suppos...

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