Explanation

The monopolistic competition graph illustrates the market for the production of a good that has a large number of sellers, has easy entry and exit into the market, and slight differentiation in the product.

In this space, an explanation of the desired shift will appear.

Please choose a shift first.

There is no dead weight loss because there is an efficient outcome.

Both the equilibrium price and quantity will increase. Since the firm was originally breaking even, the increase in demand will cause the firm to make a profit.

Adjust to long run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. This means that the demand for each individual firm will decrease, causing the equilibrium price to also decrease. Eventually, the firm’s demand curve will decrease until it is tangent to the AC curve once again.

Both the equilibrium price and quantity will decrease. Since the firm was originally breaking even, the decrease in demand will cause the firm to incur a loss.

Adjust to long run: Since the firm is incurring short-run economic loss, other firms will leave the market as it is no longer desirable. This means that the demand for each individual firm will increase, causing the equilibrium price to also increase. Eventually, the firm’s demand curve will increase until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. This means that the demand for each individual firm will increase, causing the equilibrium price to also increase. Eventually, the firm’s demand curve will increase until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. This means that the demand for each individual firm will decrease, causing the equilibrium price to also decrease. Eventually, the firm’s demand curve will decrease until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. This means that the demand for each individual firm will increase, causing the equilibrium price to also increase. Eventually, the firm’s demand curve will increase until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. This means that the demand for each individual firm will decrease, causing the equilibrium price to also decrease. Eventually, the firm’s demand curve will decrease until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. This means that the demand for each individual firm will decrease, causing the equilibrium price to also decrease. Eventually, the firm’s demand curve will decrease until it is tangent to the AC curve once again.

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. This means that the demand for each individual firm will increase, causing the equilibrium price to also increase. Eventually, the firm’s demand curve will increase until it is tangent to the AC curve once again.