Suppose the dry-cleaning market is monopolistically competitive and economically profitable this year.In the long run,the demand for any one firm's dry-cleaning services will _____ as more firms enter the industry,causing economic profits to _____.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, when firms are making economic profits, it attracts new firms to enter the market. This increases the number of substitutes and spreads the demand among more firms, leading to a decrease in demand for any one firm's services. As competition increases, the economic profits are eroded until they fall to zero, ensuring no firm earns above-normal profits in the long run.

Suppose the Dry-Cleaning Market Is Monopolistically Competitive and Economically Profitable