3. In the long run, new firms will enter a monopolistically competitive industry:
A. provided economies of scale are being realized.
B. even though losses are incurred in the short run.
C. until minimum average total cost is achieved.
D. until economic profits are zero.

Question

3.    In the long run, new firms will enter a monopolistically competitive industry:
A.    provided economies of scale are being realized.
B.    even though losses are incurred in the short run.
C.    until minimum average total cost is achieved.
D.    until economic profits are zero.

BlackTom AI · Accepted Answer

Reading the question, we’re focusing on what happens in a monopolistically competitive industry as time passes and new firms enter. 
Option A: 'provided economies of scale are being realized.' In monopolistic competition, entry is driven by profits, not by the realization of economies of scale per se. Firms differentiate products, and even with some scale economies, entry continues until profits are driven to zero; this option incorrectly ties entry to ongoing economies of scale.
Option B: 'even though losses are incurred in the short run.' While losses can occur in the short run, entry occurs in response to positive profits, not ongoing losses. If losses persist, firms exit rather than new firms entering, so this statement misstates the dynamic of entry.
Option C: 'until minimum average total cost is achieved.' Long-run entry in monopolistic competition does not aim for minimum ATC; because firms have excess capacity and product differentiation, firms typically operate with some excess capacity and do not necessarily reach the minimum point on the ATC curve. This makes this choice incorrect.
Option D: 'until economic profits are zero.' This aligns with the standard long-run outcome: entry drives profits down to zero economic profit, leaving firms earning normal profit, and no incentive for further entry. Hence, this option correctly describes the long-run equilibrium condition in monopolistic competition.

ECNM1116.32925.202530 Practice Quiz Monopolistic Competition

3. In the long run, new firms will enter a monopolistically competitive industry: A. provided economies of scale are being realized. B. even though losses are incurred in the short run. C. until minimum average total cost is achieved. D. until economic profits are zero.

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