In the short run,a monopolistically competitive firm
A)May make economic profits,but it fails to make economic profits in the long run because of the entry of new firms.
B)May make profits just as it does in the long run because firms can enter easily.
C)Produces at a rate at which long-run average cost equals price,but not at which long-run marginal cost equals marginal revenue.
D)Makes profits just as it does in the long run because entry is blocked.

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm may make economic profits due to its ability to differentiate its product and charge a higher price. However, in the long run, new firms can easily enter the market and offer similar products, causing the demand for the original firm's product to decrease and lowering prices. Eventually, the firm will no longer make economic profits, as it will only be able to charge a price that covers its long-run average costs. Therefore, the correct answer is A, as the firm may make economic profits in the short run but will fail to do so in the long run due to entry of new firms.

In the Short Run,a Monopolistically Competitive Firm