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Let's examine the adjustment to a new long run equilibrium
in a monopolistically competitive industry which faces a reduction
in demand. We begin our analysis with the firm in a long run equilibrium
as shown to the right.
Suppose we consider the market for home remodeling, most likely
monopolistically competitive in a large metropolitan area. Suppose
tastes change such that more homeowners would prefer new structures
and fewer were interested in remodeling existing homes and apartments.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved