Monopolistic competition is a very common industry structure. Firms in this industry face downward-sloping demand curves, but they only earn normal profits in the long run because potential firms can easily enter the industry.

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Monopolistic competition is known for having low barriers to entry, meaning that new firms can easily enter the market if they see an opportunity for profit. This potential entry of new firms prevents existing firms from earning above normal profits in the long run, as competition from new entrants will drive prices down until firms are earning only their normal profit. Therefore, firms in monopolistic competition may be able to earn above normal profits in the short run, but in the long run, they will only earn normal profits.

Monopolistic Competition Is a Very Common Industry Structure