Question

Classify the following statements based on whether they describe a firm with market power earning an economic profit.

A) Yes, Economic Profit
B) No, Economic Loss
C) Yes, Normal Profit
D) No, Normal Loss

Answer 1

B) No, Economic Loss. In a monopolistically competitive market, firms earning economic profits in the short run are unlikely to continue doing so in the long run.

Step-by-step explanation:

In a monopolistically competitive market, firms can earn economic profits in the short run but these profits are unlikely to continue in the long run. This is because in the long run, other firms will enter the market and competition will increase, leading to a decrease in demand and eventually reducing the economic profits to zero. Therefore, the answer to the question would be No, Economic Loss.