Which of the following describes the longrun situation in a
Monopolistically competitive market?
A)Competition drives out firms until there is only one left.
B)New firms enter the market because of monopoly profits, the demand curve shifts to the left and becomes flatter, and profits
Disappear.
C)New firms enter the market and eventually there is only one kind of product, and each firm agrees to share the profits.
D)Consumers are left with no choices and no close substitutes, and firms make higher profits.

Question

Which of the following describes the long­run situation in a
Monopolistically competitive market?
A)Competition drives out firms until there is only one left.
B)New firms enter the market because of monopoly profits, the demand curve shifts to the left and becomes flatter, and profits
Disappear.
C)New firms enter the market and eventually there is only one kind of product, and each firm agrees to share the profits.
D)Consumers are left with no choices and no close substitutes, and firms make higher profits.

Quizplus · Accepted Answer

In the long run, new firms will enter the market because of the presence of monopoly profits. This will shift the demand curve to the left and become flatter, reducing profits for all firms until they are only making normal profits. The market will still be monopolistically competitive, with firms differentiating their products to some degree, but there will be no more monopoly profits. Therefore, option B is the correct answer.

Which of the Following Describes the Long­run Situation in a

Which of the Following Describes the Longrun Situation in a