If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur?
A) New firms would be likely to enter this industry.
B) Existing firms would be likely to exit this industry.
C) Firms would neither enter nor exit this industry.
D) New firms would like to enter but since there are substantial barriers to entry they cannot do so.

Question

If the firm in the graph below represents the typical firm in a monopolistically competitive industry,what would be most likely to occur? 
A) New firms would be likely to enter this industry. 
B) Existing firms would be likely to exit this industry. 
C) Firms would neither enter nor exit this industry. 
D) New firms would like to enter but since there are substantial barriers to entry they cannot do so.

Quizplus · Accepted Answer

The graph shows that the existing firms in the industry are making positive economic profit. This represents an incentive for new firms to enter the industry in search of profit opportunities. In a monopolistically competitive market, there are typically low barriers to entry, which means that new firms are likely to enter the market. Therefore, A is the most likely outcome.

If the Firm in the Graph Below Represents the Typical