If firms in a monopolistically competitive market are earning negative economic profits,it is likely that:

Question

Quizplus · Accepted Answer

Firms in a monopolistically competitive market will exit the market if they are earning negative economic profits. This is because, in the long run, firms cannot sustain losses and will eventually exit the market to avoid further losses. This exit of firms will decrease the supply in the market, which will lead to an increase in prices and a reduction in competition. Eventually, the remaining firms may begin to earn economic profits if demand is high enough to support them.

If Firms in a Monopolistically Competitive Market Are Earning Negative