Assume that in a monopolistically competitive industry,firms are earning economic profit.This situation will:

Question

Quizplus · Accepted Answer

When firms in a monopolistically competitive industry are earning economic profit, it signals to other firms that there is potential for profit in the industry. This will attract new firms to enter the industry, increasing competition and decreasing the industry's economic profit over time. Since the barriers to entry are low, it is relatively easy for new firms to enter and compete. Therefore, option B is the correct answer. A, C, and D are incorrect because the industry will not necessarily reduce excess capacity or standardize products, and it is not guaranteed to be allocatively efficient.

Assume That in a Monopolistically Competitive Industry,firms Are Earning Economic