The diagram below illustrates a firm operating in a monopolistically competitive market.
Which of the following statements correctly describes the firm's current equilibrium position and the subsequent transition to the long run?
The firm is in a long-run equilibrium earning supernormal profits; high barriers to entry prevent new competitors from entering the market and eroding these profits.
The firm is in a short-run equilibrium earning subnormal profits; in the long run, the exit of unprofitable firms will shift the individual firm's demand (ARARAR) curve to the right.
The firm is in a short-run equilibrium earning supernormal profits; in the long run, the entry of new firms will shift the individual firm's demand (ARARAR) curve to the left until only normal profits are made.
The firm is in a long-run equilibrium achieving allocative efficiency because the profit-maximising price P1P_1P1 is equal to marginal cost.
