Exit of existing firms will occur in a monopolistic competitive industry until:
A) marginal cost equals zero.
B) marginal revenue equals zero.
C) marginal revenue equals marginal cost.
D) economic profit equals zero.

Question

Quizplus · Accepted Answer

In monopolistic competition, firms will exit until economic profit equals zero. This is because in the long run, entrants will continue to enter the market, causing demand for existing firms to decrease and lower their profits. As a result, firms will exit the market until profits reach zero, which is the point at which firms are indifferent about continuing to stay in the market or leaving. Marginal cost and marginal revenue do not necessarily determine the exit of firms in a monopolistic competitive industry.

Exit of Existing Firms Will Occur in a Monopolistic Competitive