Homework SourseWhen a profitmaximizing firm in a monopolistically competiti
When a profit-maximizing firm in a monopolistically competitive market charges a price higher than marginal cost,
The firm must be earning a positive economic profit
New firms will necessarily wish to enter the market in the long run
There is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity
The firm may be incurring economic losses
| A. | The firm must be earning a positive economic profit | |
| B. | New firms will necessarily wish to enter the market in the long run | |
| C. | There is a deadweight loss to society, but it is exactly offset by the benefit of excess capacity | |
| D. | The firm may be incurring economic losses |
Solution
When a profit maximizing firm in a monopolistically competitive market charges a price higher than the marginal cost then it shows that firm is earning a positive economic profit in the short run.
