A monopolistically competitive firm is predicted to earn positive profits

Question

Quizplus · Accepted Answer

In the short run, a monopolistically competitive firm may be able to charge a price above its average total cost and earn positive profits. However, in the long run, new firms may enter the market, increasing competition and reducing demand for the established firm's product. As a result, the firm's demand curve will shift leftward, leading to lower prices and reduced profits. Therefore, positive profits are only possible in the short run for a monopolistically competitive firm.

A Monopolistically Competitive Firm Is Predicted to Earn Positive Profits