You operate a monopolistically competitive firm and you notice that your company is making an economic profit.Which of the following is most likely to happen?

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Quizplus · Accepted Answer

In monopolistically competitive markets, firms can make economic profits in the short run due to differentiation and some level of market power. However, in the long run, other firms may enter the market, attracted by the profits, and begin to offer similar products, which will increase competition and decrease demand for the original firm's product. This will lead to a leftward shift in the demand curve and decrease the economic profit of the original firm. Therefore, it is most likely that other firms will enter the industry and the demand curve will shift left.

You Operate a Monopolistically Competitive Firm and You Notice That