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

Question

Quizplus · Accepted Answer

In monopolistically competitive industries, firms are able to enter and exit freely in response to profits or losses. In the long-run, this leads to zero economic profits, as firms either exit or enter until the price is driven down to equal the average total cost. Therefore, the correct prediction when firms are freely able to enter and exit a monopolistically competitive industry is zero profits in long-run equilibrium. The other choices (A, C, D, and E) may also occur in monopolistically competitive industries, but they are not a direct result of free entry and exit.

If Firms Are Able to Freely Enter and Exit a Monopolistically