Author Question: Over a twenty-five year period, about half of the merger acquisitions are split up. Indicate ... (Read 12 times)

Jipu 123 · **on:** Jun 30, 2018

Over a twenty-five year period, about half of the merger acquisitions are split up.
Indicate whether the statement is true or false

Question 2

Explain how economic profits are reduced to zero as new firms enter a monopolistically competitive industry.

vish98 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

True

Answer to Question 2

Influx of new sellers means that each new firm will cut into the demand of the existing firms. That is, the demand curve for each of the existing firms will fall. With entry, not only will the firm's demand curve move inward but it also becomes relatively more elastic due to each firm's products having more substitutes. This decline in demand continues to occur until the average total cost curve becomes tangent with the demand curve, and economic profits are reduced to zero.