Figure: Monopolistic Competition V (Figure: Monopolistic Competition V) In the figure Monopolistic Competition V, in the long run firms will:

Question

Figure: Monopolistic Competition V  (Figure: Monopolistic Competition V) In the figure Monopolistic Competition V, in the long run firms will:

Quizplus · Accepted Answer

In the long run, firms will enter this market until all firms earn zero economic profit. This is because the market structure of monopolistic competition allows for easy entry and exit. As new firms enter, they increase competition, which reduces demand and prices, ultimately leading to a decrease in economic profit for all firms. Conversely, if firms are earning negative economic profit, some firms will exit the market, which will decrease competition, increase demand and prices, ultimately leading to an increase in economic profit for the remaining firms. In the long run, firms will continue to enter or exit until economic profit is zero for all firms.

Figure: Monopolistic Competition V (Figure: Monopolistic Competition V) in the Figure