Entry and exit continue in monopolistic competition until the remaining firms are
A) making an economic profit.
B) incurring an economic loss.
C) making less than a normal profit.
D) making zero economic profit.
E) producing the normal amount of product differentiation.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition will enter or exit the market until they are making zero economic profit, as this means their revenue just covers their total costs, including opportunity costs. If they were making any kind of profit, new firms would enter the market, driving down the price and decreasing the profits of incumbent firms. Conversely, if they were making a loss, firms would exit the market, reducing supply and potentially allowing the remaining firms to increase their prices and profits. Thus, the equilibrium in monopolistic competition involves firms making zero economic profit.

Entry and Exit Continue in Monopolistic Competition Until the Remaining