If a firm in monopolistic competition is earning an economic profit,

Question

Quizplus · Accepted Answer

In monopolistic competition, firms have some degree of market power that allows them to set their own prices. However, this also means that there is the potential for new firms to enter the market and compete for customers. If a firm is earning an economic profit, it indicates that there is potential for other firms to enter the market and also earn a profit. This will increase competition and eventually drive down prices and reduce profits to zero in the long run. Therefore, choice B is the correct answer.

If a Firm in Monopolistic Competition Is Earning an Economic