The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2

-Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

Question

The table below shows the payoff (profit) matrix of Firm A and Firm B indicating the profit outcome that corresponds to each firm's pricing strategy (where $500 and $200 are the pricing strategies of two firms).Table 12.2
 
-Both monopolistically and perfectly competitive firms earn only normal profits in the long run.

Quizplus · Accepted Answer

This statement is true. In the long run, monopolistically competitive and perfectly competitive firms earn only normal profits, which is the minimum amount of profit necessary to keep the firm in business. Any profit above this level would attract new firms to the market, driving down prices and reducing profits until they reach the normal level.

The Table Below Shows the Payoff (Profit) Matrix of Firm