In the long run, a monopolistically competitive firm will:
A) earn normal monopoly profits.
B) earn excess monopoly profits.
C) earn no monopoly profits.
D) produce where marginal cost equals price.

Question

Quizplus · Accepted Answer

A monopolistically competitive firm operates in a market with many competitors selling differentiated products. This means that the firm has some market power, but it is not enough to earn excess monopoly profits. In the long run, new firms can enter the market or existing firms can differentiate their products, which will increase competition and lower demand for the monopolistically competitive firm's product. This will result in the firm earning zero economic profits in the long run, as it will only cover its costs but not earn any additional profits. Therefore, the correct answer is C, which states that a monopolistically competitive firm will earn no monopoly profits in the long run.

In the Long Run, a Monopolistically Competitive Firm Will