In the short term, when a firm's price exceeds its average total cost in a monopolistically competitive market, what is the likely outcome?

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The firm incurs losses and competitors leave the marketThe firm earns profits but competitors leave the marketThe firm suffers losses and new firms enter the marketThe firm gains profits and new firms enter the marketThe firm breaks even and market conditions remain unchanged

Explanation

If a firm's price is higher than its average total cost in the short run, it makes a profit. This profitability attracts new firms to enter the monopolistically competitive market, increasing competition.