Chapter 11: Problem 11

In the long run in monopolistic competition _____. a) most firms make a profit b) the absence of entry barriers ensures that there are no profits c) economies of scale ensure that there are no profits d) most firms lose money

Short Answer

Expert verified

In the long run in monopolistic competition, the absence of entry barriers ensures that there are no profits (Option B). This is because firms can freely enter and exit the market, and if profits are made, new firms will enter, increasing supply and reducing profits for everyone.

Step by step solution

Research

Familiarize yourself with the concept of monopolistic competition. It's a market structure in which many firms sell products that are similar but not identical.

Understand the Long-Run Equilibrium

This understanding is crucial since the problem is about the long-run scenario in monopolistic competition. In the long run, firms will adjust their production until they reach the point where they produce at the minimum point on the long run average cost curve, which will be where price equals long-run average cost.

Analyze the Options

Compare the characteristics of monopolistic competition with the options presented: a) Whether firms make a profit depends on their costs and revenue, not the market structure b) Entry barriers could theoretically limit profits in some situations, but they're not typically a defining characteristic of monopolistic competition. c) Economies of scale pertain to cost advantages that companies gain due to size, output, or scale of operation. They may ensure survival in highly competitive markets, not necessarily absence of profits. d) Most firms don't lose money.

Identify the Correct Option

From the analysis, the absence of entry barriers ensures that there are no profits. Since firms can freely enter and exit the market, if there are profits being made, then new firms will enter the market, increasing the supply of the product, and reducing everyone’s profits. Therefore, the correct answer is choice B.

Check Your Work

Review the selection criteria and make sure that the chosen option is indeed the most fitting. It's always helpful to double-check your work to avoid any misinterpretation or oversight.