-If firms in monopolistic competition are making economic profits, eventually
A) they shut down.
B) new firms enter the industry.
C) they exit the industry.
D) the firms in the market increase their production so that the economic profit disappears.
E) the market turns into a monopoly.

Question

-If firms in monopolistic competition are making economic profits, eventually
A) they shut down. 
B) new firms enter the industry. 
C) they exit the industry. 
D) the firms in the market increase their production so that the economic profit disappears. 
E) the market turns into a monopoly.

Quizplus · Accepted Answer

In monopolistic competition, if firms are making economic profits, it attracts new firms to enter the industry because there are low barriers to entry and the prospect of profit. This entry of new firms increases competition, which typically leads to a decrease in prices and profits until firms are earning normal profit.

-If Firms in Monopolistic Competition Are Making Economic Profits, Eventually