A monopolistically competitive firm may earn abnormally high profits in the

19 of 25 A monopolistically competitive firm may earn abnormally high profits in the Long run, but after entry occurs the sho

Answer

19.option (C) is correct i,e.short term, but the process of entry will drive those profits to zero in the long run. Reason:The profits will disappear in the long run due to abnormally high profits will attract entry of more firms into the market and drive down the profit to zero.During the long run, new firms can be set up . So, new firms wiould enter & the demand for existing firms would fall and the demand curve will shift to the left. So,this process of entry of new firms would continue to take place until demand curve would become tangent to average total cost curve showing that the firms earn normal Profits only in the long run 20.Option (C) is correct i,e. Decrease Production,increase prices and realize the positive economic profit Reason: when a firm got control of all supply of an necessary input, it gets a monopoly power, that enables the firm to reduce output and rises price, So,allow it to get positive economic profit.                                  As per Chegg guidelines, experts are only supposed to answer the first question if multiple question are posted. Kindly upload it separately. For any queries or answers comment below

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