Each firm in a monopolistically competitive market
A)earns both short-run and long-run profits.
B)faces a downward-sloping demand curve.
C)cannot earn economic profit in the short run.
D)sets price equal to marginal cost.

Question

Quizplus · Accepted Answer

Each firm in a monopolistically competitive market faces a downward-sloping demand curve. However, they may not necessarily earn economic profits in the short run due to the potential for high levels of competition and product differentiation leading to limited pricing power. In the long run, firms may experience normal profits as competitors enter or exit the market in response to economic conditions. Setting price equal to marginal cost would result in a firm operating at a loss in the long run.

Each Firm in a Monopolistically Competitive Market