Long-run economic profit in a monopolistically competitive market is mainly a function of which of the following?
(i) free entry
(ii) free exit
(iii) strategic pricing among the sellers

Question

Quizplus · Accepted Answer

In monopolistically competitive markets, firms are able to achieve short-term economic profit through strategic pricing and product differentiation. However, in the long-run, new firms are able to enter the market due to low barriers to entry, causing competition to increase and driving down profits. Free entry and exit are necessary for new firms to enter and existing firms to exit the market, leading to a more competitive market and limiting the ability for any one firm to maintain long-run economic profit. While strategic pricing among sellers may contribute to short-term profit, it is not a determinant of long-run economic profit. Therefore, choice A) (i) and (ii) is the best choice.

Long-Run Economic Profit in a Monopolistically Competitive Market Is Mainly