Managers of a monopolistically competitive firm who are enjoying a large economic profit from their recently released innovative new product should _________.

Question

Quizplus · Accepted Answer

Managers of a monopolistically competitive firm should be alert to the possibility of overexpansion when enjoying a large economic profit from their recently released innovative new product. This is because the presence of economic profit in the short run will attract new firms to the market, which can potentially lead to increased competition and reduced profits in the long run. Therefore, managers should be cautious in expanding their production capacity or investing in new projects to avoid overexpansion and potential losses in the future. They should also invest in marketing to retain customers and build brand loyalty. Erecting a barrier to entry is not a viable option in a monopolistically competitive market as it violates antitrust laws. Minimizing marketing can also be counterproductive and result in reduced sales and profits.

Managers of a Monopolistically Competitive Firm Who Are Enjoying a Large