What will happen if firms in a monopolistically competitive market are earning positive profits

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, positive profits signal that there is excess demand for the products offered by the existing firms. This creates an incentive for new firms to enter the market and compete for these profits. As more firms enter the market, the demand for each individual firm's product will decrease and the industry will become more competitive, eventually driving profits down to zero. Therefore, it is likely that new firms will enter the market in response to positive profits.

What Will Happen If Firms in a Monopolistically Competitive Market