In the long run, firms in a monopolistically competitive market earn zero economic profit.

Question

In the long run, firms in a monopolistically competitive market earn zero economic profit.​

Quizplus · Accepted Answer

In a monopolistically competitive market, there are numerous firms competing against each other, each with their own unique products or services. As such, firms must spend money on advertising and developing their products in order to differentiate themselves from their competitors. This leads to a situation where the price they can charge for their product is limited by the competition. Therefore, in the long run, firms in a monopolistically competitive market will earn zero economic profit as they are unable to price their product above the cost of production and advertising.

In the Long Run, Firms in a Monopolistically Competitive Market