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Figure: Profit Maximization in Monopolistic Competition
-(Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure Profit Maximization in Monopolistic Competition, the long-run equilibrium will result in:
A) no economic profits.
B) no accounting profits.
C) a tangency of the ATC curve with the MR curve.
D) no economic profits and a tangency of the ATC curve with the MR curve.

Question

Use the following to answer questions:
Figure: Profit Maximization in Monopolistic Competition 
-(Figure: Profit Maximization in Monopolistic Competition) In panel (B) of the figure Profit Maximization in Monopolistic Competition, the long-run equilibrium will result in:
A) no economic profits. 
B) no accounting profits. 
C) a tangency of the ATC curve with the MR curve. 
D) no economic profits and a tangency of the ATC curve with the MR curve.

Quizplus · Accepted Answer

In the long-run equilibrium of monopolistic competition, firms earn zero economic profits due to the entry of new firms, which drives down prices and profits until only normal profits remain.

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