If in the short run, a firm in a monopolistically competitive market is making a loss, then in the long run it will:

Question

Quizplus · Accepted Answer

If a firm in a monopolistically competitive market is making a loss in the short run, it may continue to operate in the market in the short run because of existing factors such as brand loyalty, product differentiation, or high fixed costs. However, in the long run, new firms will enter the market attracted by the potential profits, which will increase competition and reduce demand for the existing firm's products. This will cause the firm to make zero economic profit in the long run or exit the market. Therefore, option A is the best choice.

If in the Short Run, a Firm in a Monopolistically