If firms in monopolistic competition are making economic profits,then

Question

Quizplus · Accepted Answer

In monopolistic competition, firms can earn economic profits in the short run due to differentiation of their products. However, in the long run, new firms will enter the industry due to the low barriers to entry and the potential for profits. This increases the number of sellers in the market, leading to an increase in supply and a decrease in the demand for any single seller's product. As a result, economic profits will be eroded, and the industry will eventually reach a long-run equilibrium where firms are only earning a normal rate of return. Therefore, option B is the correct answer.

If Firms in Monopolistic Competition Are Making Economic Profits,then