In a monopolistically competitive market with negative economic profits,
A)Firms will enter until accounting profits are zero.
B)Firms will enter until economic profits are zero.
C)Firms will exit until economic profits are zero.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market with negative economic profits, firms are not earning enough revenue to cover their costs, including opportunity costs. As a result, firms will exit the market until the remaining firms are able to earn enough revenue to cover their costs, resulting in economic profits of zero. Therefore, the correct choice is C: Firms will exit until economic profits are zero.

In a Monopolistically Competitive Market with Negative Economic Profits