Exhibit 9-1 A monopolistic competitive firm

-If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1,firms in the long run will:

Question

Exhibit 9-1 A monopolistic competitive firm
 
-If all firms in the industry are the same as the monopolistic competitive firm shown in this Exhibit 9-1,firms in the long run will:

Quizplus · Accepted Answer

In the long run, firms in a monopolistic competitive industry will experience competition from new firms that enter the industry, as there are low barriers to entry. This will drive down economic profits to zero, as new firms will increase supply and compete away market power. Therefore, choice A is incorrect because firms do not necessarily leave the industry in the long run. Choice B is incorrect because economic profits will eventually be competed away. Choice C is incorrect because more firms may enter the industry rather than exit.

Exhibit 9-1 a Monopolistic Competitive Firm