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

Monopolistic competition is characterized by the absence of significant barriers to entry, which implies that new firms can enter the market and compete with existing firms. As a result, if firms in monopolistic competition make profits, new firms will be attracted to that market, increasing the supply of goods and services and reducing the demand for existing firms' products, which will eventually lead to a decrease in their profits. Therefore, in the long run, firms in monopolistic competition typically make zero profit.

Why Do Most Firms in Monopolistic Competition Typically Make Zero