In a monopolistically competitive market, if the firms are earning economic profits in the short run, which of the following is most likely to occur in the long run?
1
Firms will enter the market, leading to a decrease in the price and elimination of economic profits
2
Firms will exit the market, leading to an increase in the price and restoration of economic profits
3
Firms will reduce product differentiation, leading to lower prices and lower profits
4
Firms will increase their advertising and promotion efforts, leading to higher long-run profits