In a monopolistically competitive market, a successful new restaurant
A)can earn economic profits in the long run if it uses barriers to restrict entry by new restaurants.
B)will earn zero economic profit in the long run because of free entry, but competition will lead restaurants to offer different versions of the same product.
C)will face high entry barriers because of health and safety regulations to which all restaurants are subject.
D)must obtain a trademark to ensure that it will break even in the long run.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, there are low barriers to entry, which means that new restaurants can enter the market easily. As a result, economic profits are competed away in the long run, and firms earn zero economic profit. However, restaurants can still differentiate themselves by offering different versions of the same products, such as unique menus and atmospheres, to attract customers. Therefore, a successful new restaurant in a monopolistically competitive market can earn zero economic profit in the long run, but can still thrive by offering something different from other restaurants.

In a Monopolistically Competitive Market, a Successful New Restaurant