Refer to the following graph to answer the following questions:

-If all firms in a monopolistically competitive industry have demand and cost curves like those shown,we would expect,in the long run,that
A) all firms will leave the industry.
B) a certain percentage of existing firms will exit the industry.
C) firms in the industry will earn negative economic profits.
D) new firms will enter the industry.
E) enough new firms will enter the industry that it will become perfectly competitive.

Question

Refer to the following graph to answer the following questions:
 
-If all firms in a monopolistically competitive industry have demand and cost curves like those shown,we would expect,in the long run,that
A) all firms will leave the industry. 
B) a certain percentage of existing firms will exit the industry. 
C) firms in the industry will earn negative economic profits. 
D) new firms will enter the industry. 
E) enough new firms will enter the industry that it will become perfectly competitive.

Quizplus · Accepted Answer

In a monopolistically competitive market, firms face downward-sloping demand curves, allowing them to earn economic profits in the short run. However, these profits attract new firms into the industry, increasing competition until economic profits are zero in the long run. This does not lead to perfect competition due to product differentiation, nor does it necessarily cause existing firms to exit or incur losses.

Refer to the Following Graph to Answer the Following Questions