Question

If most firms in a monopolistically competitive market were earning profits:

a. Production inefficiencies would gradually erode profits.
b. Firms would decrease their rate of output in the short-run, causing a decline in profits of the industry.
c. New firms would be attracted to the industry.
d. Firms would advertise more and increase their output.

Answer 1

If most firms in a monopolistically competitive market were earning profits, new firms would be attracted to the industry. This could potentially erode profits for existing firms in the long run.

Step-by-step explanation:

If most firms in a monopolistically competitive market were earning profits, new firms would be attracted to the industry. This is because the opportunity for profit signals to new firms that there is demand for the product or service being offered. Additionally, the entry of new firms would increase competition, which could potentially erode profits for existing firms in the long run.