If short-run economic profits are greater than zero for firms in a monopolistically competitive market, in the long run we expect

Question

Quizplus · Accepted Answer

Monopolistically competitive markets are characterized by low barriers to entry. If firms are earning economic profits in the short run, other firms will see this and will be incentivized to enter the market and offer similar products. This will increase competition and decrease the market power of the existing firms, resulting in lower economic profits in the long run. Therefore, we expect competing firms to enter the market and sell similar products.

If Short-Run Economic Profits Are Greater Than Zero for Firms