If a monopolistically competitive firm is making positive economic profits we would expect
A)Entry of other firms
B)The firm to continue making the positive economic profits
C)The firm to expand market share and the industry to move toward an oligopoly structure
D)The firm to hire more labor

Question

Quizplus · Accepted Answer

In a monopolistically competitive market structure, there are low barriers to entry, which means that new firms can easily enter the market to compete with the existing firm. If a firm is making positive economic profits, it indicates that it is earning more revenue than its total costs, including both explicit and implicit costs. This suggests that other firms may also be attracted to the industry and may try to capture a share of the positive profits. As a result, we would expect entry of other firms into the market, leading to increased competition and a decrease in the economic profits of the existing firm. Therefore, the best answer is A.

If a Monopolistically Competitive Firm Is Making Positive Economic Profits