Assume the firms in a monopolistically competitive industry initially are earning positive economic profits.Which of the following will not occur over time?

Question

Quizplus · Accepted Answer

In a monopolistically competitive industry, when firms initially earn positive economic profits, it attracts new firms to enter the market, which increases the number of substitutes and reduces the economic profits of existing firms. However, demand for the existing firms' output does not become more inelastic; instead, it may become more elastic as consumers have more alternatives to choose from.

Assume the Firms in a Monopolistically Competitive Industry Initially Are