Question

A monopolistically competitive firm may carn abnormally high profits in the :

a. short term, but the process of entry will drive those profits to zero in the long run.

b. long term, but the process of entry will drive those profits to zero in the short run

c. short run, but after entry occurs, the long-term perceived demand curve shifts to the right.

d. long run, but after entry occurs, the short-term perceived demand curve shifts to the right.

Answer 1

A. short term, but the process of entry will drive those profits to zero in the long run.

Step-by-step explanation:

Monopolistic competition is a type of imperfect competition where a good number of producers sell products that are uniquely different and thus, aren't perfect substitutes. In cases like this, high profits can be made at the early stage but overtime, entry processes will kick in and also fast rising competition which will bring about reduced profits drastically.