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Manleen Parmar
on Nov 05, 2024

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If firms in a monopolistically competitive industry are incurring losses, in the long run

A) investment in this industry will increase to reduce production costs.
B) firms will leave this industry until the remaining firms are earning a normal profit.
C) firms will leave this industry until the firms that remain are earning a positive economic profit.
D) the government will subsidize the losses incurred by these firms so as to maintain competition in the industry.

Monopolistically Competitive

Describes a market structure where many firms sell products that are similar but not identical, allowing for product differentiation and some degree of market power.

Normal Profit

The minimum level of profit needed for a company to remain competitive in the market, equating to its opportunity costs.

Economic Profit

The surplus remaining after total costs (including both explicit and implicit costs) are subtracted from total revenues, reflecting the opportunity costs of all resources.

  • Assess the consequences of business entries and exits on sectoral earnings and the economy's profit margins.
  • Infer the conditions that lead to firms entering or exiting the market.
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Harsh MittalNov 08, 2024
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