Which of the following statements is correct?
A) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn zero economic profits in the long run.
B) Purely competitive firms, monopolistically competitive firms, and pure monopolies all earn positive economic profits in the long run.
C) In the long run, purely competitive firms and monopolistically competitive firms earn zero economic profits, while pure monopolies may or may not earn economic profits.
D) Monopolistically competitive firms earn zero economic profits in both the short run and the long run.

Question

Quizplus · Accepted Answer

Purely competitive firms earn zero economic profit in the long run due to the presence of free entry and exit which drives profits to zero. Similarly, monopolistically competitive firms also earn zero economic profit in the long run due to the presence of product differentiation and easy entry and exit. However, pure monopolies may earn economic profits in the long run due to the presence of barriers to entry that restrict the entry of new firms into the market.

Which of the Following Statements Is Correct