In what way is monopolistic competition like perfect competition?
A) They both produce homogeneous products.
B) They both earn positive profits in the long run.
C) They both earn zero profits in the long run.
D) They both produce differentiated products.

Question

Quizplus · Accepted Answer

In both monopolistic competition and perfect competition, firms earn zero economic profits in the long run due to the entry and exit of firms in the market. This process drives profits to zero as firms enter the market when there are profits to be made and exit when they are making losses, leading to a situation where, in the long run, firms just cover their costs, including a normal profit.

In What Way Is Monopolistic Competition Like Perfect Competition