If firms in a monopolistically competitive industry are making losses:

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms can enter and exit freely in the long run. If firms are making losses, it indicates that the market demand for their product is not high enough to cover their costs. This will force some firms to exit the market, reducing supply and increasing the market share and pricing power of the remaining firms. This would eventually lead to firms earning normal profits in the long run. Therefore, the best option in this scenario would be for some firms to exit the market.

If Firms in a Monopolistically Competitive Industry Are Making Losses