As long as profits are possible, more firms will enter the market, reducing the profits to each individual firm in a monopolistic competition.

Question

Quizplus · Accepted Answer

This is a fundamental principle of monopolistic competition. As more firms enter the market, the competition for the available customers increases, leading to a decrease in individual profits. This is why monopolistically competitive markets tend to be relatively inefficient, with firms spending significant amounts on marketing and product differentiation to try to stand out from their competitors.

As Long as Profits Are Possible, More Firms Will Enter