In monopolistic competition, profit:
A) is proof that advertising works.
B) motivates existing firms to increase prices.
C) signals for new firms to enter.
D) provides a motive for existing firms to decrease prices.

Question

Quizplus · Accepted Answer

In monopolistic competition, profits attract new firms to enter the market. As the number of firms increases, the competition increases and reduces the profit margin of the existing firms. This competition eventually leads to a situation where firms earn zero economic profit in the long run. Therefore, profit does not motivate existing firms to increase prices or decrease them but rather attracts new entrants.

In Monopolistic Competition, Profit