If the ice cream industry is monopolistically competitive, then:

Question

Quizplus · Accepted Answer

In a monopolistically competitive industry, firms have some degree of market power and can set their own prices. However, they also face competition from other firms producing similar products. This means that in the short run, a firm will produce where marginal revenue equals marginal cost to maximize profits. Therefore, option B is correct as it describes the short-run equilibrium in a monopolistically competitive industry. Option A is incorrect because the price may not necessarily equal marginal revenue, and option C is incorrect because in the long run, firms in a monopolistically competitive industry will earn zero economic profit, meaning that the price will not necessarily equal marginal cost. Option D is also incorrect because there are no significant barriers to entering the ice cream business, as it is relatively easy to start producing ice cream. Option E is also incorrect because in the long run, firms in a monopolistically competitive industry will earn zero economic profit, meaning they will not earn economic profits.

If the Ice Cream Industry Is Monopolistically Competitive, Then