In the short run, firms in monopolistically competitive markets
A)produce the output level where marginal revenue equals marginal cost.
B)can earn economic profits.
C)face a downward-sloping demand curve.
D)All of these responses are correct.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms face a downward-sloping demand curve due to product differentiation. In the short run, firms can earn economic profits if they are able to successfully differentiate their product and create demand for it. However, in the long run, other firms may enter the market and compete away profits, leading to a situation where firms produce at the level where marginal revenue equals marginal cost. Therefore, all the options A, B, and C are correct.

In the Short Run, Firms in Monopolistically Competitive Markets