In monopolistic competition if there is profit, there is:
A) a signal for new firms to enter.
B) a motive for existing firms to increase prices.
C) proof that advertising works.
D) a motive for existing firms to decrease prices.

Question

Quizplus · Accepted Answer

In monopolistic competition, there are relatively low barriers to entry, meaning that new firms can easily enter the market if they perceive there is profit to be made. Therefore, if existing firms are making profits, it sends a signal for new firms to enter the market and compete, which increases competition and potentially reduces profits for existing firms.

In Monopolistic Competition If There Is Profit, There Is