Once a monopolistically competitive firm innovates,it is likely that:

Question

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In a monopolistically competitive market, products are highly differentiated and there are many close substitutes. Therefore, if one firm innovates and introduces a new product, other firms are likely to quickly follow suit and create similar products, leading to increased competition and reduced profits for the innovating firm. Hence, option B is the most likely outcome. Option A is incorrect because monopolistically competitive firms are unlikely to enjoy long-run profits due to the presence of close substitutes. Option C is also unlikely because monopolistically competitive firms rarely require government protection. Option D is too inclusive and does not provide a clear answer.

Once a Monopolistically Competitive Firm Innovates,it Is Likely That