The most important factor in determining the long-run profit potential in monopolistic competition is:
A) free entry and exit.
B) the elasticity of the market demand curve.
C) the elasticity of the firm's demand curve.
D) the reaction of rival firms to a change in price.

Question

Quizplus · Accepted Answer

Free entry and exit in the market is the most important factor in determining the long-run profit potential in monopolistic competition because it ensures that firms can enter the market if they see an opportunity for profit and exit if they cannot compete, leading to a situation where firms can only make normal profits in the long run.

The Most Important Factor in Determining the Long-Run Profit Potential