A representative firm in monopolistic competition will tend to make economic profits:
A) in the short run and long run.
B) and losses in the short run and long run.
C) or losses in the short run,but the firm will break even in the long run.
D) or losses in the short run,but the firm will make economic profits in the long run.

Question

Quizplus · Accepted Answer

In the short run, the representative firm in monopolistic competition may earn either profits or losses depending on whether its revenue from selling differentiated goods exceeds or falls short of its costs. However, in the long run, other firms may enter the market, making it more competitive, and consumers may also develop a preference for substitutes, reducing the demand for the firm's products. As a result, the firm will face more competition and may only earn normal profits, breaking even in the long run. Therefore, the best choice is C, which states that the firm may face losses or profits in the short run but break even in the long run.

A Representative Firm in Monopolistic Competition Will Tend to Make