GCEEconomicsMarket Structures2023

In the long run, a firm in monopolistic competition earns only normal profit because

Athe government regulates the prices charged by each firm
Bcolluding firms agree to share the market equally
Cthe entry of new firms shifts each existing firm's demand curve to the left until supernormal profit is eliminatedCORRECT
Dfirms reduce output to the point where average cost equals marginal cost
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Why the answer is C, and why the others tempt you.
In monopolistic competition, supernormal profit in the short run attracts new entrants offering similar but differentiated products. As new firms enter, they draw customers away from existing firms, shifting each firm's demand curve leftward and reducing profit. This process continues until each firm earns only normal profit, where price equals average total cost. This is the long-run equilibrium condition in monopolistic competition.
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