Practicing Success
Which of the following IS NOT a characteristic of monopolistic competition? |
Large number of sellers in the market Product differentiation Possibility of earning supernormal profits in long run Easy entry of firms into the market |
Possibility of earning supernormal profits in long run |
In monopolistic competition, there is large number of firms and entry of ne firms is easy. This means If the firms in the industry are receiving supernormal profit in the short run, this will attract new firms. As new firms enter, some customers shift from existing firms to these new firms. So, existing firms find that their demand curve has shifted leftward and the price that they receive falls. This causes profits to fall. The process continues till super-normal profits are wiped out, and firms are making only normal profits. Converse is also true. |