Question

Which of the following will occur in the long run in this industry?

	a.	This firm will continue to earn positive economic profits.
	b.	Firms will enter this industry.
	c.	This firm will incur losses.
	d.	Firms will exit this industry.

Answer 1

As we know that in perfrect competition and monopolistic competition their is free entry and exit of firms. If the existing firms are making profits new firms will enter the industry, if on the other hand the existing firms are making losses new firms will not enter the industry. The existing firms will also leave when MC is less than MR.

The monopoly and Oligopoly is a market structure in which their are restrictions to entry of new firms. In monopoly only one firm is the seller of the product with no close substitutes. In oligopoly few firms are selling the homogeneous or differianted products.

If MR>MC new firms will enter the industry.

If MR<MC new firms will exit the industry.

The correct option is (b).

Firms will enter this industry.

Because existing firms are making profits and MR>MC.

hope you got the answer.

Thanks!