If a firm is operating in a monopolistically competitive market, then in the long run

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms have some degree of market power, but face competition from other firms producing similar products. This means that in the long run, new firms will enter the market and existing firms will experience downward pressure on prices, reducing their market power. As a result, firms in this market structure will earn only a zero economic profit in the long run, as their prices will be pushed down enough to cover their costs but no more than that. Therefore, choice A is the correct answer. Choices B and C are incorrect, as they do not reflect the reality of a monopolistically competitive market in the long run.

If a Firm Is Operating in a Monopolistically Competitive Market