9 of 15Warwick Inc. produces in a monopolistically compettive market. Which of the following corectly explains howa fmin this market struchure would transition trom the short run to the longrun?O The supemomal profits eamed by Warwick Inc in the short run will attract new firma into the market. This wil shit the market supply curve to the right, which will reduce the marketprice and the price faced by Warwick ine. The price wil keep falling until Average Revenue equals Average Cost and only normal profits are made.O The supermormal profits eamed by Warwick Inc. in the short run will attract new firms into he martet. This wil shit Warwick ine. demand curve to the left and t wit continue to shitleft until Average Revenue equals Average Cost and only normal profits are madeO The supemomal profits eamed by Wanwick Inc. in the short run will lead to the market demand aurve shifing to the right, which will raise the price fims can sell at and ts wil atractnow frms into the market. This wil shit Warwick Inc.s aupply curve to the right, which wil reduce the price can sell at and this wit continue untl Average Revenue equals AverageCost and only normal profits are madeO The supemomal profits eamed by Warwick inc. in the short run wil remain in the kong nun, due to high barriers to entry which prevent the entry of new feme and thua protect WaraickIncs profesONo answer10 of 15Which of the following statements is true?O We can find a firm's average cost by finding the slope of the firm's total cost curve.O The law of diminishing returns is a long run concept, such that as both inputs are increased to scale, output increases by proportionately less.O fa fim has increasing retums to scale at all levels of output, then the marginal cost curve will always lie under the average cost curve.A convex production possibility frontier derives from increasing opportunity cost.O No answer11 of 15If a perfectly compettive firm is in the long run equilibrium and demand in the industry then rises, which of the following would explain the changes the fierm would expertence?O The supernomal profits that could be made in the long run will attract new firms into the market. This will shit the firm's demand curve to the left and it will continue to shift left untiAverage Revenue equals Average Cost and only normal profits are made in the long run.O The lack of supemormal profits in the short run will lead to the market demand curve shiting to the left, which wil lower the price firms can sel at. This will cause frms to esit themarket, shifting the market supply curve to the left. The price that the firm can sell at will fall and this will continue until only normal profits are made in the long run.O The market price would intially ise leading to short run supernormal profits for firms in the market. This would attract new firms into the market and would shit industry supply to theright. The price would be pushed down until all supemomal profits have been competed away in the long run.O The increase in demand will cause new firms to enter the market. This will shift the supply curve for the industry to the left and raise the market price. Fims will make supemormalprofits in the short run, but will then experience an increase in average costs in the long run which will lead to normal profits being made.ONo answer

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