If firms in a monopolistically competitive market are earning negative economic profits, it is likely that:

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Quizplus · Accepted Answer

In a monopolistically competitive market, if firms are earning negative economic profits, it indicates that the revenue they are generating is not sufficient to cover all their costs, including the opportunity costs. This situation makes the market less attractive for existing firms, leading to the possibility of some firms exiting the market to minimize losses. Immediate shutdown happens only if firms cannot cover variable costs, and expansion to capture lower costs per unit doesn't directly address the issue of negative economic profits in the short term. New firms are unlikely to enter a market where existing firms are experiencing losses.

If Firms in a Monopolistically Competitive Market Are Earning Negative