View the step-by-step solution to: Assume that in a monopolistically competitive industry, firms are

Assume that in a monopolistically competitive industry, firms are earning economic profit. This situation will:

1. Reduce the excess capacity in the industry as firms expand production

2. Attract other firms to enter the industry because the barriers to entry are low

3. Cause firms to standardize their product to limit the degree of competition

4. Make the industry allocatively efficient as each firm seeks to maintain its profits

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