In the long-run equilibrium in a monopolistically competitive industry, economic profits are _________ due to __________.
A)positive; free entry into the industry.
B)zero; monopoly power.
C)positive; barriers to entry into the industry.
D)zero; free entry into the industry.

Question

Quizplus · Accepted Answer

In the long-run, economic profits in a monopolistically competitive industry will be zero due to free entry into the industry. As firms earn positive profits, new firms will enter the market, increasing competition and reducing demand for existing firms' products. This will ultimately lead to a decrease in demand and price, reducing profits until they are zero. In the long-run, firms in a monopolistically competitive industry will have zero economic profits due to the presence of free entry and exit. When firms are earning positive economic profits in the short-run, new firms will enter the industry, increasing competition and reducing the profits of existing firms. This process continues until firms only earn enough revenue to cover their costs, resulting in zero economic profits in the long-run. Therefore, the correct answer is D - zero economic profits due to free entry into the industry.

In the Long-Run Equilibrium in a Monopolistically Competitive Industry, Economic