In monopolistically competitive markets, free entry and exit suggests that
A)the market structure will eventually be characterized by perfect competition in the long run.
B)all firms earn zero economic profits in the long run.
C)some firms will be able to earn economic profits in the long run.
D)some firms will be forced to incur economic losses in the long run.

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, free entry and exit lead to a situation where, in the long run, firms earn zero economic profits. This is because if firms are earning positive economic profits, new firms will enter the market, increasing competition and driving down profits. Conversely, if firms are incurring losses, some will exit the market, reducing competition and allowing the remaining firms to increase their profits back to zero.

In Monopolistically Competitive Markets, Free Entry and Exit Suggests That