Due to the entry and exit of firms in a monopolistically competitive market:
A) economic profits and economic losses are dissipated in the long run.
B) economic profits persist in the long run, but not economic losses.
C) economic losses will exist in the long run, but not economic profits.
D) both economic profits and economic losses exist in the long run.

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, the entry of new firms when there are economic profits and the exit of firms when there are economic losses lead to a situation where, in the long run, firms earn zero economic profit. This is because the market adjusts until firms are just covering their average total costs.

Due to the Entry and Exit of Firms in a Monopolistically