Under the conditions of monopolistic competition, if a firm is earning economic profits in the short run

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition face competition from new entrants, which tends to increase the supply of the product and reduce the price. As a result, firms need to lower their prices to maintain market share and economic profits may disappear. This means that in the long run, average costs of production are higher than in the short run due to the need to compete on price. Therefore, choice C is the best answer.

Under the Conditions of Monopolistic Competition, If a Firm Is