Firms operating under monopolistic competition can make economic profits (supernormal profits) in the short and long run.

Question

Quizplus · Accepted Answer

In the short run, firms under monopolistic competition can make economic profits due to product differentiation and brand loyalty. However, in the long run, the entry of new firms attracted by these profits erodes these economic profits, leading to a situation where firms only earn normal profits.

Firms Operating Under Monopolistic Competition Can Make Economic Profits (Supernormal