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

A monopolistically competitive market structure allows for easy entry and exit of firms, so if one firm is making positive economic profits, it is likely to attract new entrants to the market, which will increase competition and decrease the market share and profits of the existing firm. Therefore, we would expect entry of other firms in response to positive economic profits.

If a Monopolistically Competitive Firm Is Making Positive Economic Profits