The model of monopolistic competition can characterize the market for plumbing services in a city.This market is initially in long-run equilibrium, but 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:
A)typical of those earned by monopoly firms.
B)negative.
C)zero.
D)positive but less than the level typically earned by monopoly firms.

Question

Quizplus · Accepted Answer

In the long run, monopolistic competition leads to zero economic profits due to the entry of new firms attracted by short-term profits, which increases competition and drives profits down to zero.

The Model of Monopolistic Competition Can Characterize the Market for Plumbing