In the long run in a monopolistic competitive industry,
A) economic profits will be positive.
B) price will be driven to zero.
C) the firm will not operate where MR = MC.
D) economic profit will be zero.
E) price will exceed average cost.

Question

Quizplus · Accepted Answer

In the long run, economic profit in a monopolistic competitive industry will be zero due to the presence of low entry barriers and the ability of firms to differentiate their products to create a degree of market power. While price may not be driven to zero, it will likely be lower than in a monopolistic industry due to the presence of substitutes, and firms will operate where MR = MC to maximize profits. Price may or may not exceed average cost depending on the level of product differentiation and the intensity of competition.

In the Long Run in a Monopolistic Competitive Industry