A monopolistically competitive industry that earns economic profits in the short run will
A)continue to earn economic profits in the long run.
B)experience the entry of new rival firms into the industry in the long run.
C)experience the exit of existing firms out of the industry in the long run.
D)experience a rise in demand in the long run.

Question

Quizplus · Accepted Answer

In the long run, other firms will enter the market to take advantage of the economic profits being earned. This will increase competition and reduce the price, leading to a decrease in economic profits. Therefore, earning economic profits in the short run will attract new firms and eventually lead to zero economic profits in the long run in a monopolistically competitive industry.

A Monopolistically Competitive Industry That Earns Economic Profits in the Short