If a monopolistically competitive firm is earning profits in the short run:

Question

Quizplus · Accepted Answer

In monopolistic competition, firms are able to differentiate their products and create a degree of market power, allowing them to earn profits in the short run. However, because there are low barriers to entry, other firms have an incentive to enter the market and compete away those profits in the long run. Therefore, choice A is the best answer. Choices B and C are incorrect because monopolistic competition does not have significant barriers to entry and it does not result in perfect competition. Choice D is also incorrect because leaving the industry would result in lost profits and potentially even more competition in the future.

If a Monopolistically Competitive Firm Is Earning Profits in the Short