The process of entry and exit into a monopolistically competitive market continues until:

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms have some degree of market power but face competition from other firms producing similar products. As new firms enter the market, they increase competition and decrease the market power of existing firms, leading to lower profits. Conversely, as firms exit the market, the remaining firms have greater market power, which leads to higher profits. As firms continue to enter and exit the market, the process will continue until the profits of the remaining firms are driven down to zero. Therefore, C) profits are zero, is the best choice.

The Process of Entry and Exit into a Monopolistically Competitive