A monopolistic competitive firm differentiates its product (from similar products) in the minds of the buying public. As a result, the firm
A)may earn positive economic profits, even with easy entry into the industry.
B)will definitely earn positive economic profits.
C)will be able to lower its costs below that of its competitors.
D)finds that its fixed costs are sunk costs.
E)a and c

Question

Quizplus · Accepted Answer

Monopolistic competition allows firms to differentiate their products, which can lead to positive economic profits in the short run, even with easy entry. However, these profits tend to attract new entrants, which can erode profits over time. Choices B, C, and D do not accurately reflect the outcomes of product differentiation in monopolistic competition.

A Monopolistic Competitive Firm Differentiates Its Product (From Similar Products)