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

A) new firms producing close substitutes will enter the industry and this entry will continue until economic profits are eliminated.
B) these firms can continue earning economic profits because entry into the industry is blocked.
C) new firms producing the exact same product will enter the industry and this entry will continue until economic profits are eliminated.
D) the government will most likely regulate firms in this industry to reduce these economic profits.

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Kriston Guerra · Accepted Answer

Final Answer : A, Explanation :  In a monopolistically competitive market, firms are able to differentiate their products to some extent. When firms in such an industry earn economic profits, it attracts new firms to enter the industry, as they can also produce close substitutes. This entry will continue until the market demand is more evenly spread out among the firms, and the economic profits are eliminated in the long run. Therefore, option A is the correct answer. Option B is incorrect because entry into a monopolistically competitive market is relatively easy. Option C is incorrect because firms in this market differentiate their products to some extent, so new firms cannot simply produce the exact same product. Option D is incorrect because there's no indication that the government will intervene in a monopolistically competitive market where firms are earning economic profits.

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