Question

If in the short​ run, firms in monopolistic competition​ _________, new firms will enter the market. A. are making an economic profit B. are making zero economic profit C. are incurring an economic loss The​ ______ each individual​ firm's product will​ ______. A. demand​ for; decrease B. demand​ for; increase C. supply​ of; decrease D. supply​ of; increase In the new​ long-run equilibrium, firms​ _______.

Answer 1

The correct answer is option A.

The correct answer is option D.

In the new long run firms will have zero profits.

Step-by-step explanation:

In the short run, the firms in a monopolistic market will have positive economic profits. This is because there is a slight restriction on entry and firms can't enter in the short run. The monopolistic firms are price makers and the price will be determined at the point where marginal revenue is equal to marginal cost.

To earn profits new firms will enter the market, the supply of goods in the market will increase. This will cause the price to fall. Consequently, profits will decline. This will continue until all the firms will be earning zero economic profits.