In the monopolistic competition model,firms earn zero economic profits in long-run equilibrium.

Question

Quizplus · Accepted Answer

In the long run, new firms can enter the market and existing firms can exit. This means that demand for each individual firm's product will decrease, as consumers have more options to choose from. As a result, each firm will have to lower its price and its profits will be squeezed. In the end, firms will earn zero economic profits as they will only cover their costs of production.

In the Monopolistic Competition Model,firms Earn Zero Economic Profits in Long-Run