The market for laundry detergent is monopolistically competitive. Each firm owns one brand, and each brand has effectively differentiated itself so that it has some market power (faces a downward sloping de- mand curve.) Still, no brand earns economic profits because entry causes the demand for each brand to shift in until the seller can just break even. All firms have identical, U-shaped cost functions. Suppose that the government does a study on detergents and finds out they are all alike. The public is notified of these findings and suddenly drops allegiance to any brand.

What happens to price? What happens to total sales? What happens to the number of firms?

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Vaishali Yadav
Vaishali YadavLv10
29 Sep 2019

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