In the long run, the economic profit earned by Hoot's Pump Chicken 'n' Ribs, a monopolistic competitor, is
A) not zero because competition is not perfect
B) not zero because its demand curve slopes downward
C) reduced to zero because firms enter the industry and shift its demand curve to the left
D) reduced to zero because firms leave the industry
E) not zero because firms face barriers to entry when they try to enter the industry

Question

Quizplus · Accepted Answer

In the long run, monopolistic competitors earn zero economic profit because new firms enter the market when existing firms are profitable, increasing competition and shifting the demand curve for the existing firm's product to the left. This process continues until profits are eliminated.

In the Long Run, the Economic Profit Earned by Hoot's