Refer to the accompanying graph. If there are exactly 20 firms in the monopolistically competitive industry that are identical to the firm shown, we would expect that, in the long run:

Question

Quizplus · Accepted Answer

In the long run, under monopolistic competition, firms will enter or exit the market in response to economic profits or losses. As shown in the graph, the demand curve is tangent to the average total cost curve at the profit-maximizing output level, indicating that the firm is earning zero economic profit. If all 20 firms in the industry are identical to this firm, we would expect them all to have the same level of output and price, and therefore, zero economic profit as well. This means that total industry economic profit would be zero in the long run.

Refer to the Accompanying Graph