Author Question: Why don't some firms in monopolistic competition earn losses in the long run? A) The firms have ... (Read 110 times)

jman1234 · **on:** Jul 1, 2018

Why don't some firms in monopolistic competition earn losses in the long run?

A) The firms have enough monopoly power to ensure they always earn profits.
B) Free entry allows enough firms to remain in the market and maintain the critical mass of firms required to attract customers.
C) Free exit implies that any unprofitable firms leave the market in the long run.
D) In the long run, firms will build enough brand loyalty among customers to ensure a profitable level of sales.

Question 2

Suppose a competitive market is in equilibrium at price P' and quantity Q'. If the demand curve becomes less elastic, but the same price-quantity equilibrium is maintained, what happens to consumer and producer surplus?

A) Both PS and CS increase
B) CS increases and PS decreases
C) CS increases and PS remains the same
D) Both CS and PS decrease