Which of the following statements best describes firms under monopolistic competition?
A) Profits will be positive in the long run.
B) Price always equals average variable cost.
C) In the long run, positive economic profit will be eliminated.
D) Marginal revenue equals minimum average total cost in the short run.

Question

Quizplus · Accepted Answer

Firms under monopolistic competition can earn positive economic profit in the short run, but in the long run, new firms will enter the market, increasing competition and reducing profits. This process continues until economic profits are eliminated and firms are only earning a normal rate of return. Therefore, statement C is the most accurate description of firms under monopolistic competition.

Which of the Following Statements Best Describes Firms Under Monopolistic