Firms in monopolistic competition would
A)persistently realize economic profits in both the short and long run.
B)may realize economic profits in the long run and normal profits in the short run.
C)tend to incur persistent losses in both the short and long run.
D)tend to realize economic profits in the short run and normal profits in the long run.

Question

Quizplus · Accepted Answer

Firms in monopolistic competition tend to realize economic profits in the short run due to product differentiation and market power. However, in the long run, new firms can enter the market and erode the market power of existing firms, leading to a decrease in economic profits and a return to normal profits. Therefore, firms in monopolistic competition may realize economic profits in the short run and normal profits in the long run.

Firms in Monopolistic Competition Would