Question

If firms in a monopolistically competitive industry are earning economic profits, then in the long run:

a. these firms can continue earning economic profits because entry into the industry is blocked.
b. new firms producing close substitutes will continue to enter the market until economic profit is zero.
c. new firms producing the exact same product will enter the industry and this entry will continue until economic profit is zero.
d. the government will most likely regulate firms in this industry to reduce the economic profits.

Answer 1

The correct answer is (C)

Step-by-step explanation:

If a firm in a monopolistic market is earning an economic profit, it allows other new firms producing the same product to enter the market. So, in long-run new firms will enter the market and create a competitive environment. The firms will keep on entering until every firm achieves normal profits, and till the economic profit is zero.