The typical monopolistically competitive firm always earns an economic profit in the long run,regardless of whether or not it advertises.

Question

Quizplus · Accepted Answer

In the long run, firms in monopolistic competition will face competition from new entrants, which will increase the level of differentiation and reduce the ability to charge higher prices. This means that economic profits will be driven towards zero in the long run. Advertising may help a firm differentiate its product in the short run, but it does not guarantee economic profit in the long run.

The Typical Monopolistically Competitive Firm Always Earns an Economic Profit