If firms are able to freely enter and exit a monopolistically competitive industry,then we can predict

Question

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In the long-run equilibrium of a monopolistically competitive industry with free entry and exit, firms will compete for customers by differentiating their products, leading to a situation where each firm produces a slightly different product from its competitors. This differentiation reduces the elasticity of demand for each firm's product and allows them to charge a higher price than if they were producing a homogenous product. However, in the long-run, new firms will enter the market to take advantage of these profits, driving down the demand for each individual firm's product and reducing their market power. This process will continue until each firm is earning zero economic profits, at which point there is no incentive for further entry. Therefore, in the long-run equilibrium of a monopolistically competitive industry with free entry and exit, we can predict zero economic profits.

If Firms Are Able to Freely Enter and Exit a Monopolistically