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Earning profit in a monopolistically competitive market

If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?

Select one:
a. New firms will enter the market, thereby eliminating the economic profit
b. Firms will continue to earn economic profit
c. Firms will join together to keep others from entering
d. Some firms will leave the market

Firms in monopolistic competition would:

Select one:
a. tend to realize economic profits in the short run and normal profits in the long run
b. tend to incur persistent losses in both the short and long run
c. persistently realize economic profits in both the short and long run
d. may realize economic profits in the long run and normal profits in the short run

The Kinked-Demand Curve model best reflects:

Select one:
a. mutual interdependence among sellers
b. a game theory approach to price-output decisions
c. price rigidities in oligopolistic markets
d. All of the above

In the Kinked Demand curve model, the demand curve is ________ for prices increases and _______ for price decreases:

Select one:
a. unit elastic; relatively elastic
b. relatively elastic; relatively inelastic
c. relatively inelastic; relatively elastic
d. perfectly elastic; perfectly inelastic

Solution Preview

If firms are earning economic profit in a monopolistically competitive market, which of the following is most likely to happen in the long run?
Answer: a. New firms ...

Solution Summary

The earning profits in a monopolistically competitive markets. New firms which enter the markets are discussed.

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