Monopolistically competitive firms behave like _______ in the short run, but earn profits similar to those earned by _______ in the long run.

Question

Quizplus · Accepted Answer

In the short run, monopolistically competitive firms have some degree of market power, allowing them to behave somewhat like monopolies, setting prices above marginal cost. However, in the long run, the entry of new firms erodes these profits, leading to a situation where firms earn normal profits, similar to those in perfect competition.

Monopolistically Competitive Firms Behave Like _______ in the Short Run