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Why Don't Some Firms in Monopolistic Competition Earn Losses in the Long

Question 2

Multiple Choice

Why don't some firms in monopolistic competition earn losses in the long run?


A) The firms have enough monopoly power to ensure they always earn profits.
B) Free entry allows enough firms to remain in the market and maintain the critical mass of firms required to attract customers.
C) Free exit implies that any unprofitable firms leave the market in the long run.
D) In the long run, firms will build enough brand loyalty among customers to ensure a profitable level of sales.

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