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

-In long-run equilibrium, each monopolistically competitive firm can earn positive economic profits due to economies of scale.

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
 
-In long-run equilibrium, each monopolistically competitive firm can earn positive economic profits due to economies of scale.

Quizplus · Accepted Answer

Monopolistically competitive firms may earn positive economic profits in the short run but in the long run, new entrants will enter the market attracted by the positive profits, resulting in increased competition, reduced demand for existing firms and decreased profits in the long run. Therefore, in long-run equilibrium, monopolistically competitive firms earn zero economic profits. The presence of economies of scale does not change this outcome.

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