Each part worth 6 points. You will need to justify your answer to receive full credit.

Consider the monopolistic competition model from lecture that is initially in long run equilibrium. Consumers suddenly become more sensitive to price differences between firms (the b-term increases).

a) Will the firm's demand curve become steeper or flatter? Does the intercept move up or down the y-axis?

b) Compared to the initial equilibrium, in the long run, what happens to the number of firms?

c) Compared to the initial equilibrium, in the long run, what happens to firm's profits?

d) Describe the transition period for this market from the initial to final equilibrium. Feel free to use a graph to describe.

e) Compared to the initial equilibrium, in the long run, what happens to the price level of the good?