If a monopolistically competitive firm engages in a successful advertising campaign resulting in above positive economic profits then in the long run that firm will

Question

Quizplus · Accepted Answer

Monopolistically competitive firms can earn positive economic profits in the short run, but in the long run, other firms will also begin to advertise and differentiate their products, reducing the ability of any one firm to charge a higher price. This will lead to increased competition and the erosion of economic profits. Therefore, in the long run, the firm will earn zero economic profits. Choice A is incorrect because successful advertising is not a significant barrier to entry in the long run. Choice B is incorrect because the government's tendency is not to regulate monopolistically competitive industries. Choice C is incorrect because earning negative economic profits is not sustainable in the long run. Choice E is incorrect because although some monopolistically competitive firms can earn economic profits in the long run, this is not universally true.

If a Monopolistically Competitive Firm Engages in a Successful Advertising