When Firms in Monopolistic Competition Are Making an Economic Profit

question 53

Multiple Choice

When firms in monopolistic competition are making an economic profit, firms will

• A) exit the industry, and demand will decrease for the firms that remain.
• B) enter the industry, and demand will increase for the original firms.
• C) enter the industry, and demand will decrease for the original firms.
• D) exit the industry, and demand will increase for the firms that remain.

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Definitions:

Price Equation

A formula representing the determinants of the price of a good or service, including production costs, competition, demand, and supply.

Setting Prices

The process of determining the value that will be charged for a product or service in the market, taking into consideration factors like cost, competition, and demand.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers over a certain period, typically illustrating the inverse relationship between price and demand.

Pricing Policies

Strategies and guidelines set by companies to determine how products or services are priced in the market.