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?

Question

Answer

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

Answer

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

Answer

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

Answer

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

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

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

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