The market for plumbing services in a city can be characterized by the model of monopolistic competition.Suppose that the market is initially in long-run equilibrium, and then there is an increase in demand for plumbing services.We expect that in the long run the economic profits of typical firms in the industry will be:

Question

Quizplus · Accepted Answer

In the long-run equilibrium under monopolistic competition, firms earn zero economic profit. This is because new firms enter the market when existing firms are making a profit, increasing the supply of services and driving down prices until profits are eliminated.

The Market for Plumbing Services in a City Can Be