Question

theoretically, product differentiation in a monopolistically competitive market will lead to

a. short-run economic profits greater than 0

b. competitors leaving the market

c. long-run economic profits less than 0

d. the demand curve of the firm's product shifting to the left

e. all of the above

Answer 1

Answer option A)

in Monopolistic Competition, in long run firms earn zero profit, C) is wrong

bcoz free entry & exit in long run, results in making each firm zero profits

hence e) is wrong

In Short Run, each firm earns positive profit , A is true

Since each firm selling Differentiated products , so no case of demand curve shifting left , bcoz products are not homogeneous.

So D is false