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DaniilM [7]
3 years ago
12

In the long run, a monopolistically competitive firm will earn: (A) normal profits because economic profits will attract new fir

ms and there are no entry restrictions.(B) economic profits because of product differentiation.(C) economic profits because of entry restrictions.(D) normal profits because costs are high for monopolistically competitive firms.
Business
1 answer:
enot [183]3 years ago
3 0

Answer: Option (A) is correct.

Explanation:

Correct Option: Normal profits because economic profits will attract new firms and there are no entry restrictions.

In a monopolistically competitive market, firms will earn an economic profit in the short run, so new firms attracted with these profits and decided to enter into the market in the long run.

There is no barriers on entry and exit of the firms in the monopolistically competitive market. When new firms enters into the market, as a result supply of differentiated products increases.

This causes the firm's market demand curve to shift leftwards. It will continue shifting to the left in the firm market demand curve till the point where it is nearly tangent to the average total cost curve.

At this point, firms earns zero normal profit and can earn normal profits in the long run same as a perfectly competitive firm.

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