If a monopolistically competitive firm is earning above-normal profits, then in the long run its demand will shift to the right and become more elastic.

Question

Quizplus · Accepted Answer

In the long run, other firms will enter the market, increasing competition and reducing the monopolistically competitive firm's market power. This will cause demand to shift back to the left and become less elastic. The firm's profits will eventually be eroded until they are earning only normal profits.

If a Monopolistically Competitive Firm Is Earning Above-Normal Profits, Then