What do the entry and exit of firms in monopolistically competitive market guarantee
A)that marginal revenue equals marginal cost, and average total cost is minimised.
B)that firms can earn economic profits in the long run.
C)that price equals average total cost in the long run.
D)that firms can earn economic profits in the short run.

Question

Quizplus · Accepted Answer

In the long run, the entry and exit of firms in a monopolistically competitive market guarantee that price equals average total cost (ATC). This is because if firms are earning economic profits, new firms will enter the market, increasing competition and driving down prices. Conversely, if firms are incurring losses, some firms will exit the market, reducing competition and allowing prices to rise. Ultimately, this process will continue until firms are earning zero economic profits, which occurs when price equals ATC.

What Do the Entry and Exit of Firms in Monopolistically