In the long run,firms in monopolistic competition make zero economic profit.When firms make zero economic profit,in the long run they exit the industry.
A) The first sentence is correct and the second sentence is incorrect.
B) The first sentence is incorrect and the second sentence is correct.
C) Both sentences are correct.
D) Both sentences are incorrect.
E) More information about the presence or absence of barriers to entry and exit is needed to determine if the statements are true or false.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition do indeed make zero economic profit due to the entry of new firms, which erodes abnormal profits. However, making zero economic profit does not mean firms exit the industry; it means they are covering all their costs, including opportunity costs, so there's no incentive to leave.

In the Long Run,firms in Monopolistic Competition Make Zero Economic