Question

for a monopolistic competitor, short - run profits will tend to ____ in the long run and short - run losses will tend to ____ in the long run.
a. remain steady; remain steady
b. disappear; disappear
c. grow; grow
d. grow; shrink

Explanation:

In monopolistic competition, there is free entry and exit of firms. If there are short - run profits, new firms will enter the market. This increases the supply of differentiated products, which leads to a decrease in the demand faced by each firm. As a result, the short - run profits will disappear in the long run. If there are short - run losses, some firms will exit the market. This decreases the supply of differentiated products, and the demand faced by the remaining firms will increase. So, the short - run losses will also disappear in the long run.

Answer:

B. disappear; disappear