The typical monopolistically competitive firm earns no economic profit in the long run,regardless of whether or not it advertises.

Question

Quizplus · Accepted Answer

In the long run, monopolistically competitive firms will face competition from other firms producing similar products. This means that if a firm is earning economic profit in the short run, new firms will enter the market attracted by the potential profits, increasing the competition and driving down prices. As a result, in the long run, the firm will earn only enough revenue to cover its costs, including advertising expenses if any. Therefore, a monopolistically competitive firm earns no economic profit in the long run, regardless of whether or not it advertises.

The Typical Monopolistically Competitive Firm Earns No Economic Profit in the Long