If the eyeglass industry is monopolistically competitive, then:

Question

Quizplus · Accepted Answer

In a monopolistically competitive market, firms differentiate their products, which means that they have some market power to set their prices. However, this market structure also implies that there are many firms competing with each other, which implies that there are limited profits to be earned in the long run. As a result, firms will increase their output until the marginal revenue equals the marginal cost, but the price will be higher than the marginal cost, which implies that firms will earn some economic profit in the short run. However, competitors will enter the market attracted by these profits, and this will drive down the demand and price of the differentiated products, reducing the economic profit to zero in the long run.

If the Eyeglass Industry Is Monopolistically Competitive, Then