Figure 13-2

-In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries.The key factor in this is
A)differentiated products.
B)freedom of entry into and exit from the industry.
C)price discrimination.
D)brand names.

Question

Figure 13-2
​ 
-In monopolistic competition, the long-run equilibrium results in zero economic profit of the firms in these industries.The key factor in this is
A)differentiated products. 
B)freedom of entry into and exit from the industry. 
C)price discrimination. 
D)brand names.

Quizplus · Accepted Answer

In monopolistic competition, firms produce differentiated products, have some market power, and are able to earn economic profits in the short run. However, because there is freedom of entry into and exit from the industry, in the long run, more firms enter the industry to take advantage of the profits, increasing competition and driving down prices. This leads to firms earning zero economic profit in the long run equilibrium. Price discrimination and brand names may be factors that contribute to a firm's market power, but they are not the key factor in achieving zero economic profit in the long run.

Figure 13-2 ​

Figure 13-2