Why do most firms in monopolistic competition typically make zero profit in the long run?
A)because firms produce differentiated products
B)because the lack of entry barriers would compete away profits
C)because firms do not produce at their minimum efficient scale
D)because the total market is not large enough to accommodate so many firms

Question

Quizplus · Accepted Answer

In monopolistic competition, there are low barriers to entry, so new firms can easily enter the market and produce similar products. This competition limits the ability of existing firms to earn profits in the long run, as they will have to lower their prices to compete with new entrants, thereby reducing their profit margin. As a result, most firms in monopolistic competition will make zero profit in the long run.

Why Do Most Firms in Monopolistic Competition Typically Make Zero