Which of the following statements is correct?
A)In the long run, monopolistically competitive firms always experience high economic profits.
B)In the long run, monopolistically competitive firms tend to experience zero economic profits.
C)In the long run, it is likely that monopolistically competitive firms experience negative economic profits.
D)In the long run, it is likely that monopolistically competitive firms experience substantial economic losses.

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms tend to experience zero economic profits because there are no barriers to entry, meaning that new firms can enter the market if they see potential economic profits. As more firms enter the market, demand for existing firms' products becomes more elastic and firms have to lower their prices to remain competitive, ultimately leading to zero economic profits.

Which of the Following Statements Is Correct