Monopolistically competitive firms can earn profits in the long run by:

Question

Quizplus · Accepted Answer

Monopolistically competitive firms can earn profits in the long run by continually innovating to differentiate their product. By doing so, they can create a loyal customer base that is willing to pay a premium for their differentiated product, allowing the firm to earn profits in the long run. Price discrimination and minimizing costs may help a firm increase profits in the short run, but they are not sustainable strategies for long-term profitability in a monopolistically competitive market. Furthermore, monopolistically competitive firms can earn above-normal profits in the long run as long as their product remains differentiated and there are barriers to entry preventing new firms from entering the market and competing away those profits.

Monopolistically Competitive Firms Can Earn Profits in the Long Run