-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the ________ equilibrium in which the motel is ________ .
A) short-run; making an economic profit
B) short-run; making zero economic profit
C) long-run; making an economic profit
D) long-run; making zero economic profit
E) short-run; incurring an economic loss

Question

-The above figure shows a motel engaged in monopolistic competition with other motels.the figure above shows the ________ equilibrium in which the motel is ________ .
A) short-run; making an economic profit 
B) short-run; making zero economic profit 
C) long-run; making an economic profit 
D) long-run; making zero economic profit 
E) short-run; incurring an economic loss

Quizplus · Accepted Answer

In the short-run equilibrium of a firm in monopolistic competition, it is possible for the firm to make an economic profit. This is because the firm can set its price above average cost due to product differentiation and some degree of market power. Over time, this profit attracts new entrants into the market, increasing competition and driving down prices and profits towards a long-run equilibrium of zero economic profit.

-The Above Figure Shows a Motel Engaged in Monopolistic Competition