In a monopolistically competitive market structure, the force that leads to zero economic profits in the long run is:

Question

Quizplus · Accepted Answer

In a monopolistically competitive market structure, firms have some degree of market power due to the differentiation of their products, which allows them to charge a slightly higher price than their competitors. However, this also attracts new firms to enter the market and offer similar products, increasing competition and reducing the market power of all firms in the industry. As a result, in the long run, firms will only earn a normal rate of return on their investment, leading to zero economic profit. Therefore, the entry of new firms into the industry is the force that leads to zero economic profits in the long run.

In a Monopolistically Competitive Market Structure, the Force That Leads