Exhibit 10-3 A monopolistic competitive firm in the long run
-As represented in Exhibit 10-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:
A) zero.
B) $10 per week.
C) $4,000 per week.
D) $40,000 per week.

Question

Exhibit 10-3 A monopolistic competitive firm in the long run 
-As represented in Exhibit 10-3, the maximum long-run economic profit earned by this monopolistic competitive firm is:
A) zero. 
B) $10 per week. 
C) $4,000 per week. 
D) $40,000 per week.

Quizplus · Accepted Answer

In the long run, there is free entry and exit in the monopolistic competitive market, which makes it impossible for any firm to earn economic profit greater than zero. The demand curve faced by the firm will shift downward as new firms enter the market, reducing the firm's market share and its ability to charge a high price. Therefore, the maximum long-run economic profit for a monopolistic competitive firm is zero.

Exhibit 10-3 a Monopolistic Competitive Firm in the Long Run