If firms in a monopolistically competitive market are earning economic profits, which of the following scenarios would best reflect the change facing incumbent firms as the market adjusts to its new equilibrium?

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, if firms are earning economic profits, new firms will be attracted to the market. This increased competition will lead to a decrease in demand for the incumbent firms as consumers have more options to choose from, moving the market towards a new equilibrium where firms earn normal profit.

If Firms in a Monopolistically Competitive Market Are Earning Economic